Project Supply Chain Management

5/30/2009 Kiran Afshan, Huma Naz | MBA –ITM 13

Table of Contents Chapt er Numb er 1 2 3 4 5 6 7 8

Title

Organization Portfolio Literature Survey An Introduction to Supply Chain and Supply Chain Management Supply Chain of Pepsi Haidri Beverages Ideal Features of a Supply Chain Management Software Supply Chain Management Systems and the Current Marketplace Proposed System for Pepsi Haidri Beverages Limitations and Future Recommendations

P age # 3 13 26 80 100 129 167 186

Chapter 1

Organization Portfolio

Chapter 1 Organization Portfolio Haidiri Beverages Private Limited, Pakistan The Haidiri Beverages Group was set up in 1979 and is Pepsi's sole selling agent for District Rawalpindi and Islamabad. It is based in the CDA Industrial Triangle, Kahuta Road, Islamabad. It manages the supply for several wholesalers, retailers, restaurants, hotels and other such food outlets. In order to achieve the projected sales targets effectively, the organization ensures a comprehensive strategic alignment with the overall Pepsi Cola’s business strategy. Haidiri Beverages’ primary functions are to conduct a systematic manufacturing and supply of the product without any tactical flaws. Backed by a powerful competitive strategy and empowered by some effective supply chain strategies, the group has been managing an effective supply chain throughout the region. It has set up a sophisticated manufacturing and storage plant in Rawalpindi with multiple production units and huge production capacity. Haidiri Beverages has different management departments dealing with specialized Marketing, Human Resource, Information Technology and Supply Chain Processes. In this section we conduct a brief analysis of the basic supply chain management functions of Haidri beverages.

1.1 History of PepsiCo PepsiCo is a world leader in convenient snacks, foods and beverages, with revenues of more than $39 billion and over 185,000 employees. The company consists of PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB) and PepsiCo International (PI). PAF includes Frito-Lay North America, Quaker Foods North America and all Latin America food and snack businesses, including Sabritas and Gamesa businesses in Mexico. PAB includes PepsiCo Beverages North America and all Latin American beverage businesses. PI includes all PepsiCo businesses in the United Kingdom, Europe, Asia, Middle East and Africa. PepsiCo brands are available in nearly 200 countries and generate sales at the retail level of more than $98 billion. Some of PepsiCo's brand names are more than 100-years-old, but the corporation is relatively young. PepsiCo was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay. Tropicana was

acquired in 1998 and PepsiCo merged with The Quaker Oats Company, including Gatorade, in 2001. PepsiCo offers product choices to meet a broad variety of needs and preference -- from fun-for-you items to product choices that contribute to healthier lifestyles. PepsiCo’s mission is: “To be the world's premier consumer “Products Company” focused on convenient foods and beverages. We seek to produce healthy financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity.” (www.pepsico.com)

1.2 PepsiCo Headquarters PepsiCo World Headquarters is located in Purchase, New York. The seven-building headquarters complex was designed by Edward Durrell Stone, one of America's foremost architects.

1.3 Areas of Operation Haidri Beverages is one among a number of PepsiCo’s franchisers all around the country. Haidri Beverages, solely, have three branches in Pakistan located in Islamabad/Rawalpindi, Gujranwala and Peshawar. All the franchises in Pakistan have divided their area of distribution and the domain of each franchiser is restricted to their area of operation. Not much of expansion is done since it might violate the domain area of other franchisers. We will be dealing with the area covered by Haidri Beveravges Islamabad. Haidri Beverages deals with distributors residing in Islamabad/Rawalpindi district, with its boundaries starting from Dina, Mirpur till Attock district.

1.4 Business Cycle of Pepsi Haidri Beverages

Figure 1 Business Cycle of Haidri Beverages [Source: Haidri Beverages Management]

The business cycle starts from forecasting customer demand for each product of PepsiCo individually. According to the demand forecasted by the sales and distribution department, the annual plan is prepared for the running year which is then further divided into quarterly, monthly, weekly and daily basis and production plan is created. For the production, the company needs raw materials, these raw materials include the following: 1. Pepsi Concentrate 2. Sugar 3. Carbonated Water 4. Glass Bottles 5. PET bottles 6. Plastic in Raw Form 7. Packaging material 8. Crates 9. Cans 10. Bottle caps 11. … and many others Much of the raw materials are acquired by local manufacturers. However, cans, Pepsi concentrate, glass bottles etc. are purchased from manufactures that are: 1. Domestic but at distant location 2. Located in Foreign countries (New York, Dubai)

The purchased raw material is shifted immediately to store (in-house raw material inventory) from where it is periodically issued to the production department for processing in order to convert it into final product. As in company policy, the finished product is immediately shifted to distributors and is stored there. Only safety level finished product inventory is maintained by the company so as to comply with laws enforced by Government to keep minimum level safety inventory.

A Territory Development Manager of the company is designated for each distributor for monitoring further sales to retailers and consumers. This is a place where the exact demand and supply ratio is measured and targets are defined. The distributor produces information of actual sales (supply) to the customer which is an input to the company as demand forecast which completes the business cycle of Haidri Beverages.

1.5 Organizational Workflow The workflow of Pepsi Haidri Beverages starts from preparing the annual sales and procurement strategy. This sales strategy is then divided into quarters, months, weeks and days. On the basis on monthly sales, a target is defined for each distributor and they are made aware of that target. The distributors accomplishing this target get discounts and bonuses. Haidri Beverages doesn’t need to contact distributors or retailers themselves since they have a predefined number of distributors and the network needs no expansion. Each distributor is responsible for a specific area and the other distributors are not allowed to enter in this domain. According to the defined sales strategy, the production plan is prepared for the year divided further into quarters, months, weeks and days. The daily or weekly production plan is forwarded to production department. According to the production plan, the production department makes a production schedule which is done on daily basis. The production department makes a complete sketch of products to be produced and the required raw materials and their quantity. These raw materials are requisitioned from the inventory (store). The inventory control department is divided into two areas: store management and warehouse management. The store mainly contains the raw material which is required to produce the product as well as all the other raw materials required for operations management throughout the organization. The warehouse stores the finished product only. The organization keeps only the safety inventory in its warehouse. A daily shipment of product is done to the distributors in order to fulfill consumer demand. In order to fulfill the demand of production department, the Purchase department needs to procure raw material frequently. The suppliers are already chosen by the company and contracts are given to those suppliers only. The company gives priority to local suppliers so as to complete its business cycle efficiently and effectively.

Unfortunately, there are a number of items that are unavailable in local market and it has to purchase these items from remote areas. These materials include cans, Pepsi concentrate, sugar, nitrogen (liquid form), and others. The purchased items are moved first to the store where the raw material is issued to concerned department according to the requisition done. The finished product is moved to warehouse where the shipment department is responsible for loading product to vehicles for delivery to distributors. A small amount of finished goods inventory is kept by the company as safety inventory. The peak season when the demand is highest usually starts from May and continues till September. During this period, the demand is fulfilled by making longer shifts and utilizing the production equipment 24 hours a day. The waste produced during manufacturing process is sold out to concerned parties. The supply chain designed in this research will therefore follow the Lean Supply Chain Management strategy. The cash is collected by the finance department by hand. The company has not opted for any credit or online credit-card sale as yet. The manufacturing process is shown in the figure below: Carbonated Liquidation PEPSI Capping Put Put Filing Syrup Into Bottles Start Concentrate the Process and Tank of Filtering Filling inCoding Sugar Crates Filling of crates with through Process Machine Process Machine 2 24 bottles

1.5 Current IT Infrastructure The company has partially automated its four (4) major business processes: 1. Sales Process 2. Accounting and Finance 3. Human Resource 4. Store and warehouse management

The details of these modules and how they help in the business processes is provided as under:

Figure 2 Production process of beverages [Source: Pepsi Haidri Beverages Production Department]

1. Sales or Shipment Module The sales module encapsulates all information regarding distributor data management, key accounts management, sale (cash inflow) and shipment etc. The distributor information is captured with regards to the area it is covering in the local market, the location of the distributor, name, contact numbers, contact persons etc. Key accounts are those retailers to which the company distributes the product directly. This happens in the case of fountain fresh Pepsi products which are delivered to the customer using the post-mix cylinders delivered by company owned vehicles. Such customers include KFC, Pizza Hut, Savour Foods and others. Sales are done on cash payments which are deposited in advance by the distributor. The products are then shipped the distributor. Usually, the distributors bring along their own vehicles to load the shipment. At the time of sale, the data is saved in ERP sales module, the finance data (cash inflow) is updated and a receipt is generated by the system called sales invoice. The system keeps track of which distributor purchased what quantity and the frequency of sales can also be captured. A daily sales report is generated by the system which shows the distributor, units of product purchased, date of purchase, the total amount and other key information. The company defines a target sale for each distributor at the beginning of month. This target is defined on the basis of previous sales history of the distributor which is managed by the

software. The reports generated by the system also provide the user with the information of what percentage of the target has been achieved by the distributor as yet. The distributor can be judged on this basis if he will be able o achieve the set target or not. The ERP system not only keeps track of the primary sales done to the distributor, it also captures the secondary sale data provided by Territory Development Managers (TDMs), the personnel designated by the company to monitor the distributor sales (at distributor end) and to keep a check that a distributor does not enter the domain of another distributor. The secondary sales data contains information regarding distributor’s sale to retailers which is recorded in units per day and does not actually contain information as to which retailer the product was sold. 2. Financial Accounting module Financial accounting module has a basic and limited functionality. It has two to three main entry forms regarding insertion/deletion of accounts (chart of accounts) and transaction entry. Any transaction taking place in the company will be recorded here. The invoices (payment or receipt) is also created in the same form. The form contained a category field where the category of receipt/transaction is defined. The categories can be cash receipt, bank receipt, payment invoice, sale invoice etc. A notable point is that the transaction is not made automatically when a sales transaction takes place. This could be rightly so as the cash payment is received directly from the distributor by the finance department, but it can create a logical error since the transaction is not done in correspondence to the sales transaction. The reports generated the system include trial balance, balance sheet, income statement and other basic financial statements. 3. Inventory Management It is also a limited-functionality module which only records how much items are produced today. This entry is done at the end of the day and still there is confusion about what actually is inserted in the system since the total manufactured amount is reduced at the end of the day due to sales transaction

and the corresponding batch numbers or lot numbers are not recorded in sales module. The system still supports the inventory control system since it contains up-todate information regarding the finished product available in the warehouse only and also the store data which contains information of raw materials. The stock-in and stock-out is also updated whenever requisition is made from the production department for the raw material used for production.

4. Human Resource Management module Human Resource Management module has proved to be very handy when it comes to daily attendance and payroll calculations. The system automatically generates a bar code when a new employee is added in the HRM module. On the basis of this bar code, employee gets a printed card. Whenever an employee comes in or goes out, he scans his card against the bar-code reader placed at the entry gate of the company and the time-in and timeout of instantly updated by the system. A monitory report is also flashed on manager’s screen which is updated every 5 seconds. This shows a complete list of employees coming in and going out. The system contains a descriptive employee record and employee leaves are also managed by the system. It shows how much leaves of which category (casual leave, paid leave, sick leave etc.) has been acquired by each employee as yet. The payroll of employees are calculated automatically including overtimes, deductions (for late arrivals and extra leaves), bonuses, allowances etc. and a pay slip is generated by the system. In order to support the ERP system and network as a whole, the following hardware configuration has been adopted by the MIS department: •

Full LAN support, using domain server, switches, boosters and other network equipment

•

Internet facility is provided to all users

•

1 oracle database server, 1 application server, Linux server (for network management), and a print server

•

Requisition for a backup database server has already been placed

•

The network facilitates almost 50-60 users around the organization

The system, collectively, has proved to be very beneficial for the employees and managers at Haidri Beverages and the employees seem to be satisfied over the system’s performance. Further enhancements are done at frequent basis in order to facilitate the company’s management and human resource to perform their tasks in a much better way.

Chapter 2

Literature Survey

Chapter 2 Literature Survey 2.1 Article: How should we define SCM? Author :Sree Hameed Created on: 11 April 2007 In the early years of SM it is considered to breaking down the walls but now the concept is change it not breaking down the walls but rearranging the walls. SCM helps to achieve CEO agenda. Professional organizations try to provide knowledge of SCM. This figure helps to understand the process of business

Figure 3Business processes in a supply chain [Source: Sree Hameed, 2007]

Through this figure we get overview of business and understand how actually it makes money. The purpose is to see the bigger picture and creating value to enterprise and not stuck into conflicts and debates. 2.1.1 Customer (the why) Customers are those who take the initial step in order to get the product. Company current and future strategies around which product to build, assets to own, which market to enter or serve these all things depend on customer needs and requirement.

2.1.2 Product (the what) As the product become obsolete more innovation and creativity is required in order to satisfy customer need. But to meet innovation, profitability requires engineering. There is a gap between actual and desired and this gap will lead to the profit leaks.

Figure 4 Product leaks [Source: Sree Hameed, 2007]

Profit leaks also provide the opportunity for product and process innovation. 2.1.3 Process (the how) Seven core processes are design, source, make, move, store, sell and service. Management takes decision regarding to process. The decision based on three groups i.e. strategic, tactical, execution. 2.1.4 People/Partner (the who) Customer demanding better, faster and cheaper which increase the product complexity and this leads to complexity in supply chain. Companies try to achieve flexibility and responsiveness. Outsource some process or function to the partners who have more competencies in specific area. Processes are shared and collaborate and coordinate with partners. When environment is very dynamic it is very difficult to go alone. Life cycles of products are shrinking faster as compare to lifecycle of the assets used to produce the product this will lead the organization where they have very little choice and they are less adaptive to assets.

2.2 Article: Supply Chain Management Author: M. Eric Johnson SCM is flow of information, funds and material from supplier to producer and then to distributor and ultimately to consumer but it also includes after sale service. SCM involves the coordination of material and information between firms but inventory management coordinates with inventories at different locations. SCM is famous in recent years for a number of reasons. Action taken by one person of the firm can influence others profitability in the chain. But nowadays firms compete with other supply chain as a part of supply chain. So as a firm successfully streamlines its operation, the next step for improvement is coordination with their suppliers and customers. In the Italian pasta industry, the demand of consumer was stable throughout the year however because of trade promotions, volume discounts, long lead times and end of quarter

sales

incentives

the

order

seen

at

the

manufacturers

are

highly

variable(Hammond 1994).So it lead that to a Bull Whip effect. Some managers are more interested in integration but it is impossible to implement a system oriented approach without information technology. Supply chain should be viewed as an integrated system Forrester (1958); Forrester (1961).Change in management theory and technology set the stage of supply chain management. One of the reasons of change in mgmt theory means the shift of power from manufacturers to retailers. Information technology and retail power are the key catalysts in SC. E-business is playing an important role and is facilitating the virtual supply chain

Figure 5 Supply Chain Process [Source: M. Eric. Johnson (1999), Supply Chain Management]

2.2.1 Key components of supply chain management According to the author, there are twelve key components of a supply chain management system: 1. Location 2. Transportation and Logistics 3. Inventory and forecasting 4. Marketing and channel restructuring 5. Sourcing and supplier management 6. Information and electronic mediated environments 7. Product design and new product introduction 8. Service and after sales support 9. Reverse logistics and green issues 10. Outsourcing and strategic alliances

11. Metrics and incentives 12. Global issues Location includes both qualitative and quantitative facility location. This includes models of facility location, geographic information systems (GIS),country differences, taxes and duties, transportation costs associated with certain locations, and government incentives (Hammond & Kelly (1990)).Transportation and logistics includes all the issues which are related to the flow of goods through the supply chain including transportation, warehousing and material handling. Inventory and forecasting includes traditional inventory and forecasting models. Marketing and restructuring includes the basic thinking on the on SC structure (Fisher 1997) and it includes the interfaces with marketing. Bull whip effect has received many attentions in the research literature. But, increased in consumer demand through the EDI and the internet can decrease the Bull whip effect. Other initiatives can also mitigate the bullwhip effect. For example, changes in pricing and trade promotions (Buzzell, Quelch, &Salmon (1990)) and channel initiatives, such as vendor managed inventory (VMI), coordinated forecasting and replenishment (CFAR), and continuous replenishment (Fites (1996), Verity (1996), Waller, Johnson, & Davis (1999)), can significantly reduce demand variance.

Figure 6 Typical VMI impplmentation [Source: M. Eric Jonhson (1999), Supply Chain Management]

Marketing focuses downstream in the supply chain, whereas sourcing and supply management focuses on upstream to suppliers. Information and electronic mediated environments focuses on application of IT to reduce inventory (Woolley (1997) and the expanding area of e-commerce (Benjamin & Wigand (1997) and Schonfeld (1998)). The sale and after sale support addresses the critical problem of providing service and service parts (Cohen and Lee (1990). Reverse logistics and green issues are emerging dimensions of supply chain management (Marien (1998)).

Figure 7 Product recovery options [Source: M. Eric Johnson (1999), Supply Chain Management]

Outsourcing and strategic alliances sees the SC impact of outsourcing. With the rapid growth in third party logistics providers, there is a large and expanding group of technologies and services to be examined. These include fascinating initiatives such as supplier hubs managed by third parties. Metrics and incentives include organizational and economic issues. This category includes both measurement within the supply chain (Meyer (1997)) and industry benchmarking ((1994), (1997)).Final one is global issue when a company operates in foreign multiple country. When a company operates in foreign country then tax rate, duties and currency exchange rate and govt. issues matters a lot.

2.3 Article: Artificial Intelligence in Supply Chain Management - Theory and Applications Author: Hokey Min 2.3.1 Purpose: The purpose of this article is to promote the AI for improving human decision-making processes in supply chain management and the organization productivity in various business areas due to its ability for recognizing business potential and pattern, using relevant information, and analyses data accurately. 2.3.2 Design/Methodology/Approach: This paper covers the explanation of the AI based SCM system .Despite its widespread acceptance as a decision making tool, AI has seen limited application in supply chain management (SCM). To fully explain the potential benefits of AI for SCM, this paper explores various sub-fields of AI that are most suitable for solving practical problems relevant to SCM. This article reviews the past record of success in AI applications to SCM and identifies the most suitable areas of SCM in which to apply AI. 2.3.3 Findings /Objectives: The main objectives of this article are to identify the sub-fields of AI that are most suitable for SCM applications and their usefulness for improving SC efficiency, analyzing the existing literature dealing with the applications of AI to SCM ,to develop a taxonomy for the existing AI literature and categories it according to its SCM application areas, problem scope, and methodology, to identify the potential SCM application areas that have not been explored and discuss the future trends for AI in SCM. 2.3.4 Review: Hokey Min (2009) described about the role of artificial intelligence in supply chain management system. AI use computers for reasoning, identifying business pattern, use past experience for forecasting and making decision for present problems. Hockey Min use existing literature for explaining AI and its applications that are used in many fields. Although AI is used in many fields of decision making but SCM is not fully used the benefits of AI. He categorized the existing literature into three classes’ problem

scope, methodology and the implementation status. He described the role of AI in sub units of supply chain like Inventory control and planning, transportation network design, Purchasing and supply management, Demand planning and forecasting, Orderpicking problems, Customer relationship management and e-synchronized SCM. So it is concluded that AI tools has great potential for solving many

strategic issues

involving CRM, outsourcing relationships, strategic alliances among SC partners, SC coordination, collaborative demand planning, and business-to-business negotiations. Another finding is that an agent-based system has emerged as one of the most popular AI tools for tackling various aspects of SC problems. However AI has some limitations like AI does not have free will and depends on the computer software which may be programmed incorrectly and AI solutions may not be easy to implement. 2.3.5 Reference: Author: Hokey Min Affiliation: Management, College of Business Administration, Bowling Green State University, Bowling Green, OH, USA Publication Frequency: 6 issues per year Published in: International Journal of Logistics Research and Applications First Published on: 24 March 2009

2.4 Article: A Collaborative Supply Chain Management Part 2 – the hybrid KB/gap analysis system for planning stage The Authors Zulkifli Mohamed Udin, Faculty of Technology Management, Universitiy Utara Malaysia, Kedah Darul Aman, Malaysia Mohammad K. Khan, School of Engineering, Design and Technology, University of Bradford, Bradford, UK Mohamed Zairi, School of Management, University of Bradford, Bradford, UK

2.4.1 Purpose – The purpose of this paper is to promote the model of knowledge-based collaborative supply chain management (KBCSCM) system as an alternative strategy for organizations to resolve the problems in their current supply chain management (SCM) in the era of collaborative commerce. 2.4.2

Design/methodology/approach – This paper covers the explanation of the

KBCSCM system and the utilization of the GAP analysis technique, which is integrated

in the knowledge-based system (KBS). Through this technique, the current position of organizations’ can be identified before implementation of some improvement programs. 2.4.3 Findings – This paper has described a hybrid KB/GAP analysis CSCM system for application in organizations, specifically for manufacturing environment. The valid, practical and consistent solutions that are provided by KBCSCM system would assist organizations in implementing CSCM as a strategy. 2.4.4 Originality/value – This paper describe the use of KB approach in the SCM environment. A systematic planning of CSCM has not been developed before and the development of the KBCSCM system is believed to be crucial in order to improve the competitiveness of the organization’s SCM. So that users can be able to easily understand the position of their organization. 2.4.5 Review Udin, khan & Zairi describes in this paper the hybrid KB/GAP analysis Collaborative Supply chain management system for manufacturing organization. Knowledge base system is the information system application those support organization in decision making. The use of KBS application in the SCM is mostly use in area of procurement; purchasing, supplier selection and evaluating supplier performance. The use of knowledge base approach in SCM and systemic planning and design of CSCM improve the competitiveness of organization.

This paper presents the idea to develop

collaborative supply chain management. This paper promotes CSCM as a strategy and eliminates disintegration in Supply chain. CSCM based on GAP analysis enable management to identify firm performance. In this paper the production rule based type of KBS is used to structure the information that is gathered from literature and from users. All modules are developed separately and integrated using phase technique. Trust among parties in SCM, communication, resources sharing, responsibility, profit and risk sharing, technology, business processes adjustment and other issues are taken as a basic guideline to develop CSCM system in this paper. This system enables users to use the knowledge that reside in the system. The GAP analysis technique used in rule based structure show the organization position. In this paper the prototype of KBCSCM system for the planning stage has been developed and tested using artificial data. Three modules of planning are organization environment perspective module, Collaborative business perceptive module and

external-internal chain perspective module. In organization environment perceptive module gather the general information like company background, number of employees, type of industry, SCM investment activities etc. Purpose of this module is to identify the current condition of organization and its environment. The purpose of collaborative supply chain perspective module is to show current market position and it has tree sub modules: financial performance, market analysis and product development. Product development phase measure the interest of suppliers and customers in product development activities. Internal-external chain perspective module consist two sub modules internal function strategy and supplier customer strategy. The function of this module is to understand the current market position based on internal-external relationship based on some variables such as commitment, integration,

trust

development,

relationship

management,

information

and

communication and etc. Udin Z.M, Khan .M.k & Zairi. M (2006). A collaborative supply chain management. The hybrid KB/GAP analysis system for planning stage, Business Process Management journal, Vol. 12, No. 5, 671-687

2.5 Article: The Internet-Enabled Supply Chain: From the “First Click” to the “Last Mile” Author: Dr. David L. Anderson, Anderson Consulting Dr. Hau L. Lee, Stanford University 2.5.1 Purpose: The purpose of this article is to study how the internet has changed the way in which supply chains are managed, planned and controlled. The authors state that the web offers the supply chain enormous potential and entirely new methods for streamlined coordination between business partners, including third and even fourth-party providers. The authors further state that companies who want to succeed in the new economy need to enhance communications with their partners and providers. 2.5.2 Review The internet has provided companies a wide range of opportunities to create value. Using the internet to connect the supply chain systems to all the other supply chain

participants becomes the medium through which the essential processes of managing and synchronizing supply chains are carried out. The reason why the change in supply chains, by shifting them over to internet, is so certain is, firstly, that the customers are looking beyond cost as the sole arbiter of value. They demand innovation and personalization of not only the products but of the associated velocity of the supply chain issues exponentially and yet at the same time requires greater flexibility. How will the Internet-enabled supply chain be different from the traditional supply chain? The authors believe there are some key areas that distinguish the new Internetenabled supply chain from the traditional supply chain. These areas and issues are discussed by the authors as follows: 2.5.2.1 e-Design – Product Innovation on the Web The authors have identified the following key benefits of an eSCM:•

Shorter time-to-market, enabled by collaborative design

•

Internet-enabled technology provides real-time linkages between key suppliers, manufacturers, engineers and marketers

•

The ability to conduct collaborative design means that companies can iterate many more design alternatives with suppliers

•

Product upgrades can also be achieved more effortlessly and in a timely manner, enabling companies to stay ahead of their competition

•

The revenue and profit impacts are enormous

•

Enhanced communication and collaborative processes overcome many of the organization silo issues faced in traditional sequentially oriented design activity

•

Products can be rolled out faster

•

The risks of customer needs shifting during development are mitigated

•

Increased collaboration throughout the design process can minimize product complexities that later drive supply chain inefficiencies and costs in production, logistics and service parts.

Figure 8 E-Design of SCM [Source: D.L. Anderson, 2000]

2.5.2.2 e-Mediaries and Exchanges – Using Online Markets to Revolutionize Buying and Selling The marketplace, according to the authors, is being reinvented. Companies can now buy and sell across a wide spectrum of emerging Internet-enabled marketplaces. Like traditional marketplaces, trading networks may take many forms. In the suppliercentric model, like W.W. Grainger, sellers provide their catalogs online for all buyers to access. Global companies like BP Amoco are utilizing the buyer-centric model to display their needs online and allow vendors to make bids. The latest development is online marketplaces – the business-to-business equivalent of eBay. These marketplaces are like online bazaars, where anyone can buy or sell all types of goods and services. Each of these various exchanges provides companies with unique opportunities to tap into performance and cost benefits unavailable prior to the Internet. Regardless of the type of marketplace, the benefits are many: lower product acquisition costs, lower procurement transaction costs, the ability to tap into almost unlimited supply sources to respond to changing market needs, and a means to profitably dispose of unused excess inventory. References: Anderson D.L., Lee H.L. (2000), Internet-Enabled Supply Chain: From the “First Click” to

the

“Last

Mile”,

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http://www.ascet.com/documents.asp?d_ID=199

vol.

2

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Chapter 3

An Introduction to Supply Chain & Supply Chain Management

Chapter 3 An Introduction to Supply Chain & Supply Chain Management Up till recently, companies did not think in terms of supply chains, but viewed themselves and their trading partners as independent islands. Sellers at times struggled to keep up with demand, while buyers purchased goods for which they could pay, barter or obtain credit. Economic and competitive pressures eventually forced companies to think in terms of supply chains for the production and delivery of goods. For this reason, the material or physical supply chain was born. With the advancement of business processes, supply chain gained more and more importance for each member of business community including manufacturers, retailers, suppliers, suppliers’ suppliers and even consumer. Strategies were developed in order to accelerate product sales and distribution. With the expansion of sales from areas to cities and cities to countries, the need arose for proper tracking of demand and supply as well as forecasting of materials, supplies, sales and distribution schemas. After the emergence of Information Technology and business globalization, the concept of integrated supply chain management was revolutionized. Information technology consists of the tools used to gain awareness of information, analyze this information, and execute on it to increase the performance of the supply chain.

3.1 What Is a Supply Chain? A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. The supply chain includes not only the manufacturer and suppliers, but also transporters, warehouses, retailers and even customers themselves. Within each organization, such a manufacturer, the supply chain includes all functions involved in receiving and fulfilling a customer request. These functions include, but are not limited to, new product development, marketing, operations, distribution, finance and customer service.

Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable. A typical supply chain begins with ecological and biological regulation of natural resources, followed by the human extraction of raw material and includes several production links, for instance; component construction, assembly and merging before moving onto several layers of storage facilities of ever decreasing size and ever more remote geographical locations, and finally reaching the consumer.

Figure 9 Information, Funds, and Product flow in SCM [Source: http://dspace.mit.edu/bitstream/handle/1721.1/39816/ESD-260JFall2003/OcwWeb/Engineering-SystemsDivision/ESD-260JFall2003/CourseHome/index.htm]

Consider a customer walking into a Wal-Mart store to purchase detergent. The supply chain begins with the customer and his or her need for detergent. The next stage of this supply chain is the Wal-Mart retail store that the customer visits. Wal-Mart stocks its shelves using inventory that may have been supplied from a finished-goods warehouse or a distributor using trucks supplied by a third party. The distributor in turn is stocked by the manufacturer (say Proctor & Gamble [P&G] in this case). The P&G manufacturing plant receives raw material from a variety of suppliers, who may themselves have been supplied by lower-tier suppliers. For example, packaging material may come from Tenneco packaging, while Tenneco receives raw material to

manufacture the packaging from other supplier. This supply chain is illustrated as follows:-

Figure 10 Wal-Mart SCM Process [Source: Supply Chain Management System by Sunil Chopra &Pete Meindl]

A supply chain is dynamic and involves the constant flow of information, product and funds between different stages. In the above example, Wal-Mart provides the product, as well as pricing and availability information, to the customer. The customer transfers funds to Wal-Mart. Wal-Mart conveys point-of-sales data as well as replenishment orders to the warehouse or distributor, who transfers the replenishment order via trucks back to the store. Wal-Mart transfers funds to the distributor after the replenishment. The distributor also provides pricing information and sends delivery schedule to WalMart. Wal-Mart may send back packaging material to be recycled. Similar information, material, and fund flows take place across the entire supply chain. A typical supply chain may involve a variety of stages. These supply chain stages include: Customers Retailers Wholesaler/distributors

Manufacturers Component/raw material suppliers Each stage in a supply chain is connected through the flow of products, information, and funds. These flows often occur in both directions and may be managed by one of the stages or an intermediary. Each stage need not be present in a supply chain. The appropriate design of supply chain depends on the customer’s needs and the roles played by stages involved.

3.2 The Objective of a Supply Chain The objective of every supply chain should be to maximize the overall value generated. The value a supply chain generated is the difference between what the final product is worth to the customer and the costs the supply chain incurs in filling the customer’s request. For most commercial supply chains, value will be strongly correlated with supply chain profitability (also known as supply chain surplus), the difference between the revenue generated from the customer and the overall cost across the supply chain. Supply chain profitability or surplus is the total profit to be shared across all supply chain stages and intermediaries. The higher the supply chain profitability, the more successful is the supply chain. Supply chain success should be measured in terms of supply chain profitability and not in terms of profits at an individual stage. Many of the exchanges encountered in the supply chain will therefore be between different companies who will seek to maximize their revenue within their sphere of interest, but may have little or no knowledge or interest in the remaining players in the supply chain. More recently, the loosely coupled, self-organizing network of businesses that cooperates to provide product and service offerings has been called the Extended Enterprise.

3.3 Supply Chain Management (SCM) Supply Chain Management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers. Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to pointof-consumption. In other words, SCM is a cross-functional inter-enterprise system that

uses information technology to help support and manage links between some of a company’s key business processes and those of its suppliers, customers, and business partners. Supply chain management has generated much interest in recent years for a number of reasons. Many managers now realize that actions taken by one member of the chain can influence the profitability of all others in the chain. Firms are increasingly thinking in terms of competing as part of a supply chain against other supply chains, rather than a single firm against other individual firms. Also, as firms successfully streamline their operations, the next opportunity for improvement is through better coordination with their suppliers and customers. The cost of poor coordination can be really high. The figure below illustrates an example of a supply chain network and how closely each partner is linked to one another in order to fulfill the demand and supply process:-

Figure 11 An example of SCM Process

3.4 Goal of Supply Chain Management

Goal of SCM is to efficiently manage process bifurcating demand, controlling inventory, enhancing the network of business relationships a company has with customer, suppliers, distributors and others, and receiving feedback on the status of every link in the supply chain. The goal of SCM is to create a fast, efficient, and low cost network of business relationships, or supply chain, to get a company’s products from concept to market. Supply Chain Management is one of the most important strategic aspects of any business enterprise. Decisions must be made about how to coordinate the production of goods and services, how and where to store inventory, whom to buy materials from, and how to distribute them in the most cost-effective, timely manner.

3.5 The Bullwhip Effect In the Italian pasta industry, consumer demand is quite steady throughout the year. However, because of trade promotions, volume discounts, long lead times, fullytruckload discounts, and end-of-quarter sales incentives the orders seen at the manufacturers are highly variable. In fact, the variability increases in moving up the supply chain from consumer to grocery store to distribution center to central warehouse to factory, a phenomenon that is often called bullwhip effect.

Figure 12Bullwhip Effect in Supply Chain [Source: http://knowscm.blogspot.com/2008/02/bullwhip-effect-insupply-chain.html]

The costs of this variability are high – inefficient use of production and warehouse resources, high transportation costs, high inventory costs, to name a few. Acer Inc.

sacrificed $20 million in profits by paying $10 million for air freight to keep up with surging demand, and then paying $10 million more later when that inventory became obsolete. The bullwhip effect phenomenon has been observed in many different industries and occurs whenever demand uncertainties and variability become magnified at each link in the supply chain. It’s one of the most important causes of inefficiency in a supply chain.

Order Quantity Manufacturer’s Orders to Supplier

Wholesaler’s Orders to Manufacturer

Retailer’s Orders to Wholesaler

Figure 13 Bullwhip Effect in supply chain [Source: http://knowscm.blogspot.com/2008/02/bullwhip-effect-insupply-chain.html]

3.6 Supply Chain Infrastructure The supply chain involves both internal and external supply chain operations. The suppliers and customers both are inter-linked to the manufacturing organization. The internal supply chain involves sequential links of the purchasing, production and distribution department. The purchases department of a company is directly linked to the suppliers of that company to purchase materials is raw, semi-finished or finished form. After these materials are purchased, they are passed on to the production department to covert this material into finished product. This finished product is forwarded to distribution department for the distribution of finished goods to retailers and ultimately, to the customers.

Figure 14 Supply Chain Process [Source: http://en.wikipedia.org/wiki/File:A_company%27s_supply_chain_(en).png]

3.7 Extended Supply Chain The extended supply chain is a clever way of describing everyone who contributes to a product. So if you make text books, then your extended supply chain would include the factories where the books are printed and bound, but also the company that sells you the paper, the mill where that supplier buys their stock, and so on. It is important to keep track of what is happening in your extended supply chain because with a supplier or a supplier’s supplier could end up having an impact on you (as the old saying goes, a chain is only a strong as its weakest link). For example, a fire in a paper mill might cause the text book manufacturer’s paper supplier to run out of inventory. If the text book company knows what is happening in its extended supply chain it can find another paper vendor. Consider a typical manufacturer. The supply chain is made up of many interrelated firms as shown in the figure below. There are part suppliers, component suppliers and subassembly suppliers. Further up the chain are the suppliers’ suppliers, finally reaching raw materials suppliers at the top of the chain. Going downstream, back through the producing firm, the supply chain continues through the warehousing and distribution channels, and then through the retail channels, ending with the consumer.

Raw Material Suppliers

Raw Material Suppliers

Raw Material Suppliers

Part Suppliers

Component Suppliers

Subassembly Suppliers

Manufacturers

Warehousing Channels

Distribution Channels

Retail Channels Retail Channels Retail Channels

Consumer

Figure 15 A Systematic diagram of extended supply chain

The supply chain encompasses all activities associated with the flow and transformation of goods and services from the raw material stage (at one end of the supply chain) through to the consumer (at the other end of the chain), including all associated information flows.

3.8 Basic Components of Supply Chain Management The following are five basic components of SCM:-

1.

Plan – This is the strategic portion of SCM. You need a strategy for managing all the resources that go toward meeting customer demand for your product or service. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers.

2.

Source – Choose the suppliers that will deliver the goods and services you need to create your product. Develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. And put together processes for managing the inventory of goods and services you receive from suppliers, including receiving shipments, verifying them, transferring them to your manufacturing facilities and authorizing supplier payments.

Figure 16 The Five Components of Supply Chain Process

3.

Make – This is the manufacturing step. Schedule the activities necessary for production, testing, packaging and preparation for delivery. As the most metricintensive portion of the supply chain, measure quality levels, production output and worker productivity.

4.

Deliver – This is the part that many insiders refer to as logistics. Coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments.

5.

Return – The problem part of the supply chain. Create a network for receiving defective and excess products back from customers and supporting customers who have problems with delivered products.

3.9 SCM Flows Supply chain management flows can be divided into three main flows: 1. The Product Flow It includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs. 2. The Information Flow It involves transmitting orders and updating the status of delivery. 3. The Finances Flow It consists of credit terms, payment schedules, and consignment and title ownership arrangements. If the goal of SCM is to provide high product availability through efficient and timely fulfillment of customer demand, then how is the goal accomplished?

Figure 17 A view of different flows in a supply chain [Source: http://www.careersinsupplychain.org/what-isscm/flows.asp]

Obviously, you need effective flows of products from the point of origin to the point of consumption. But there’s more to it. Consider the diagram of the fresh food supply chain. A two-way flow of information and data between the supply chain participants creates visibility of demand and fast detection of problems. Both are needed by supply chain managers to make good decisions regarding what to buy, make, and move. Other flows are also important. In their roles as suppliers, companies have a vested interest in financial flows. As you can understand, suppliers want to get paid for their products and services as soon as possible and with minimal hassle. Sometimes, it is also necessary to move products back through the supply chain for returns, repairs, recycling, or disposal.

3.10 The Importance of Supply Chain Decisions There is a close connection between the design and management of supply chain flows (product, information, and funds) and the success of a supply chain. Wal-Mart, Dell Computer, and Seven-Eleven Japan are examples of companies that have built their success on superior design, planning, and operation of their supply chain. In contrast, the failure of many e-businesses such as Webvan can be attributed in weaknesses in their supply chain design and planning. Wal-Mart has been a leader at using supply chain design, planning and operation to achieve success. From its beginning, the company invested heavily in transportation and information infrastructure to facilitate the effective flow of goods and information. Wal-Mart designed its supply chain with clusters of stores around distribution centers to facilitate frequent replenishment at its retail stores in a cost-effective manner. Frequent replenishment allows stores to match supply and demand more effectively than the competition. Wal-Mart has been a leader in sharing information and collaborating with suppliers to bring down costs and improve product availability. The results are impressive. In their annual 2004 report, the company reported a net income of more than $9 billion on revenues of about $250 billion. These are dramatic results for a company that reached annual sales of only $1 billion in 1980. The growth in sales represents an annual compounded growth rate of 26 percent.

3.11 Decision Phases in a Supply Chain Successful supply chain management requires many decisions relating to the flow of information, product, and funds. Each decision should be made to raise the supply chain profitability. These decisions fall into three categories of phases, depending on the frequency of each decision and the time frame during which a decision phase has an impact. As a result, each category of decisions must consider uncertainty over the decision horizon. 1. Supply Chain Strategy or Design During this phase, given the marketing and pricing plans for a product, a company decides how to structure the supply chain over the next several years. It decides what the chain’s configuration will be, how resources will be allocated, and what processes each stage will perform. Strategic decisions made by companies include whether to outsource or perform a supply chain function in-house the location and capacities of production and warehousing facilities, the products to be manufactured or stored at various locations, and the modes of transportation to be made available along different shipping legs, and the type of information system to be utilized. A firm must ensure that the supply chain configuration supports its strategic objectives and increases supply chain profitability during this phase. For example, a company’s decisions regarding its choice of supply sources for components, contract manufacturers for manufacturing, and the location and capacity of its warehouses , are all supply chain design or strategic decisions. Supply chain design decisions are typically made for long-term and are very expensive to alter on short notice. Consequently, when companies made these decisions, they must take into account the uncertainty in anticipated market conditions over the next few years. Decisions made during this phase include: Strategic network optimization, including the number, location, and size of warehouses, distribution centers and facilities

Strategic partnership with suppliers, distributors, and customers, creating communication

channels

for

critical

information

and

operational

improvements such as cross docking, direct shipping, and third-party logistics Product design coordination, so that new and existing products can be optimally integrated into the supply chain, load management Information Technology infrastructure, to support supply chain operations. Where-to-make and what-to-make-or-buy decisions Aligning overall organizational strategy with supply strategy

Figure 18 Hierarchy of Supply Chain Decisions [Source: http://www.eil.utoronto.ca/profiles/rune/node5.html]

2. Supply Chain Planning For decisions made during this phase, the time frame considered is a quarter to a year. Therefore, the supply chain’s configuration determined in the strategic phase is fixed. This configuration establishes constraints within which planning must be done. The goal of planning is to maximize the supply chain profitability that can be generated over the planning horizon given the constraints establishes during the strategic or design phase. Companies start the planning phase with a

forecast for the coming year (or a comparable time frame) of demand in different markets. Planning includes making decisions regarding which markets will be supplied from which locations, the subcontracting of manufacturing, the inventory policies to be followed, and the timing and size of marketing and price promotions. Planning establishes parameters within which a supply chain will function over a specified period of tie. In the planning phase, companies must include uncertainty in demand, exchange rates, and competition over this time horizon in their decisions. Given a shorter time frame and better forecasts than the design phase, companies in the planning phase try to incorporate any flexibility built into the supply chain in the design phase and exploit it to optimize performance. As a result of the planning phase, companies define a set of operating policies that govern short-term operations. Decisions made during this phase include: Sourcing contracts and other purchasing decisions. Production decisions, including contracting, scheduling, and planning process definition. Inventory decisions, including quantity, location, and quality of inventory. Transportation strategy, including frequency, routes, and contracting. Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise. Milestone payments Focus on customer demand. 3. Supply Chain Operations The time horizon here is weekly or daily, and during this phase companies make decisions regarding customer orders. At the operational level, supply chain configuration is considered fixed, and planning policies are already defined. The goal of supply chain operations is to handle incoming customer orders in the best possible manner. During this phase, firms allocate inventory or production to

individual customer orders, set a date that an order is to be filled, generate pick lists at a warehouse, allocate an order to a particular shipping mode and shipment, set delivery schedules of trucks, and place replenishment orders. Because operational decisions are being made in the short term (minutes, hours, or days), there is a less uncertainty about demand information. given the constraints established by the configuration and planning policies, the goal during the operational phase is to exploit the reduction of uncertainty and optimize performance. Decisions made during this phase include: Daily production and distribution planning, including all nodes in the supply chain Production scheduling for each manufacturing facility in the supply chain (minute by minute). Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers Inbound operations, including transportation from suppliers and receiving inventory Production operations, including the consumption of materials and flow of finished goods Outbound operations, including all fulfillment activities and transportation to customers Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers... The design, planning, and operation of a supply chain have a strong impact on overall profitability and success. It is fair that a large part of the success of a firm can be attributed to their effective supply chain design, planning, and operation.

3.12 Process Views of a Supply Chain

A supply chain is a sequence of processes and flows that take place within and between different stages and combine to fill a customer need for a product. There are five different stages which are the participants of a supply chain, that is, customer, retailer, distributor, manufacturer and supplier. There are two different ways to view the processes performed in a supply chain. 1. Cycle View: The processes in a supply chain are divided into a series of cycles,

each performed at the interface between two successive stages of a supply chain. Given the five stages of a supply chain, all supply chain processes can be broken down into the following four process cycles:a. Customer order cycle b. Replenishment cycle c. Manufacturing cycle d. Procurement cycle

Customer Supplier Manufacturer Distributor Retailer Customer Replenishment Manufacturing Procurement Order Cycle Cycle Cycle Cycle

Each cycle occurs at the interface between two successive stages of the supply chain. The five stages thus result in four supply chain process cycles. For example, when customers shop online at Amazon, they are part of the customer order cycle – with the customer as the buyer and Amazon as the supplier. In contrast, when Amazon orders books from a distributor to replenish its inventory, it is part of the replenishment cycle – with Amazon as the buyer and the distributor as the supplier. Within each cycle, the goal of the buyer is to ensure product availability and to achieve economies of scale in ordering. The supplier attempts to forecast customer orders and reduce the cost of receiving the order. The supplier then works to fill the order on time and improve efficiency and accuracy of the order fulfillment process. The buyer then works to reduce the cost of the receiving process. Reverse flows are managed to reduce cost and meet environmental objectives. A cycle view of the supply chain clearly defines the processes involved and owners of each process. This view is very useful when considering operational

decisions because it specifies the roles and responsibilities of each member of the supply chain and the desired outcome for each process. 2. Push/Pull View All processes in a supply chain fall into one of the two categories depending upon the timing of their execution relative to end customer demand. With pull processes, execution is initiated in response to a customer order. With push processes, execution is initiated in anticipation of customer orders. Therefore, at the time of execution of pull process, customer demand is known with certainty, whereas at the time of execution of a push process, demand is not known and must be forecasted. Pull processes may also be referred to as reactive processes because they react to customer demand. Push processes may also be referred to as speculative processes because they respond to speculated (forecasted) rather than actual demand. The push/pull view is very important when considering strategic decisions relating to supply chain design.

3.13 Supply Chain Macro Processes in a Firm All supply chain processes discussed in the two process views can be classified into the following three macro processes: 1. Customer Relationship Management (CRM): All processes that focus on the

interface between the firm and its customers 2. Internal Supply Chain Management (ISCM): All processes that are internal to

the firm 3. Supplier Relationship Management (SRM): All processes that focus on the

interface between the firm and its suppliers The three macro processes manage the flow of information, product, and funds required to generate, receive, and fulfill a customer request.

3.13.1 CRM Macro Process The CRM macro process aims to generate customer demand and facilitate the placement and tracking of orders. It includes processes such as marketing, pricing, sales, order management, and call center management. At an industrial distributor,

CRM processes include the preparation of catalogs and other marketing materials, management of the Web site, and management of the call center that takes order and provides services. 3.13.2 ISCM Macro process The ISCM macro process aims to fulfill demand generated by the CRM process in a timely manner and at lowest possible cost. ISCM processes include the planning of internal production and storage capacity, preparation of demand and supply plans, and fulfillment of actual orders. 3.13.3 SRM Macro Process The SRM macro process aim to arrange and manage supply sources for various goods and services. SRM processes include the evaluation and selection of suppliers, negotiation of supply terms, and communication regarding new products and orders with suppliers. All three supply chain macro processes and their component processes are shown in the figure below:

Supplier

Company

Customer

Figure 19 SCM Macro Processes [Source: Copra S., Meindl P., Supply Chain Management]

For a supply chain to be successful, it is crucial that the three macro processes are well integrated. The organizational structure of the firm has a strong influence on the success or failure of the integration effort. In many firms, marketing is in charge of the CRM macro process, manufacturing handles the ISCM macro process, and purchasing oversees the SRM macro process – with very little communication among them. It is not unusual for marketing and manufacturing to have two different forecasts when making their plans. This lack of integration hurts the supply chain’s ability to match supply and demand effectively, leading to dissatisfied customers and high costs. Firms should structure a supply chain organization that mirrors the macro processes and ensures good communication and coordination among the owners of processes that interact with each other.

3.14 Drivers of Supply Chain performance Success and profitability in a supply chain requires that a company’s supply chain achieve the balance between responsiveness and efficiency that best meets the needs of the company’s competitive strategy. To understand how a company can improve supply chain performance in terms of responsiveness and efficiency, we must examine the logistical and cross-functional drivers of supply chain performance: facilities, inventory, transportation, information, sourcing, and pricing. These drivers interact with eachother to determine the supply chain performance in terms of responsiveness and efficiency. As a result, the structure of these drivers determines if and how strategic fit is achieved across the supply chain. 3.14.1 Facilities Facilities are the actual physical location in the supply chain network where product is stored, assembled, or fabricated. The two major types of facilities are production sites and storage sites. Decision regarding the roles, location, capacity and flexibility of facilities have a significant impact on the supply chain performance. For instance, an auto parts distributor striving for responsiveness could have many warehousing facilities located close to customers even though this practice reduces efficiency alternatively a high efficiency distributor would have fewer warehouses to increase efficiency despite the fact that this practice will reduce responsiveness. 3.14.2 Inventory

Inventory encompasses all raw materials, work in process, and finished goods within a supply chain. Changing inventory policies can dramatically alter the supply chain’s efficiency and responsiveness. For example, a clothing retailer can make itself more responsive by stocking large amounts of inventory and satisfying customer demand from stock. A large inventory, however, increases the retailer’s cost, thereby making it less efficient. Reducing inventory makes the retailer more efficient but hurts its responsiveness. 3.14.3 Transportation Transportation entails moving inventory from point to point in the supply chain. Transportation can take the form of many combinations of modes and routes, each with its own performance characteristics. Transportation choices have a large impact on supply chain responsiveness and efficiency. For example, a mail-order catalog company can use a faster mode of transportation such as FedEx to ship products, thus making its supply chain more responsive, but also less efficient given the high costs associated with using FedEx. Or the company can use slower but cheaper ground transportation to ship the product, making the supply chain efficient but limiting its responsiveness.

3.14.4 Information Information consists of data and analysis concerning facilities, inventory, transportation, costs, prices, and customers throughout the supply chain. Information is potentially the biggest driver of performance in the supply chain because it directly affects each of the other drivers. Information presents management with the opportunity to make supply chains more responsive and more efficient. For example, with information on customer demand patterns, a pharmaceutical company can produce and stock drugs in anticipation of customer demand, which makes the supply chain very responsive because customers will find the drugs they need when they need them. This demand information can also make the supply chain more efficient because the pharmaceutical firm is better able to forecast demand and produce only the required amount. Information can also make this supply chain more efficient by providing managers with

shipping options, for instance, that allow them to choose the lowest-cost alternative while still meeting the necessary service requirements. 3.14.5 Sourcing Sourcing is the choice of who will perform a particular supply chain activity such as production, storage, transportation, or the management of information. At the strategic level, these decisions determine what functions a firm performs and what functions the firm outsources. Sourcing decisions affect both the responsiveness and efficiency of a supply chain. After Motorola outsourced much of its production to contract manufacturers in China, it saw its efficiency improve but its responsiveness suffer because of the long distances. To make-up for the drop in responsiveness, Motorola started flying in some of its cell phones from China even though its choice increased transportation cost. Flextronics, an electronics contract manufacturer, is hoping to offer both responsive and efficient sourcing options to its customers. It is trying to make its production facilities in United States very responsive while keeping its facilities in lowcost countries efficient. Flextronics hopes to become an effective source for all customers using this combination of facilities. 3.14.6 Prices Pricing determines how much a firm will charge for goods and services that it makes available in supply chain. Pricing affects the behavior of the buyer of the good or service, thus affecting supply chain performance. For example, if a transportation company varies its charges based on the lead time provided by the customers who value responsiveness will be willing to wait and order just before they need a product transported. Early orders are less likely if prices do not vary with lead time.

3.15 Framework for Structuring Drivers The visual framework for supply chain decision making is shown in figure below; Most companies begin with a competitive strategy and then decide what their supply chain strategy ought to be. The supply chain strategy determines how the supply chain should perform with respect to efficiency and responsiveness. The supply chain must then use the three logistical and three cross-functional drivers to reach the performance level this supply chain strategy dictates and maximize the supply chain profits.

Although this framework is generally viewed from the top-down, in many instances, a study of six drivers may indicate the need to change the supply chain and potentially even the competitive strategy

3.16 Components of Decision in Supply Chain Drivers 3.16.1 Facilities Decisions regarding facilities are a crucial part of supply chain design. Following are the components of facilities decisions that companies must analyze. 3.16.1.1 Role For production facilities, firms must decide whether they will be flexible, dedicated, or a combination of the two. Flexible capacity can be used for many types of products but is often less efficient, whereas dedicated capacity can be used for only a limited number of products but is more efficient. Firms must also decide whether to design a facility with a product focus or a functional focus. A product-focused facility performs many different functions (e.g., fabrication and assembly) in producing a single type of product. A functional-focused facility performs few functions (e.g., only fabrication or only assembly) on many types of products. A product focus tends to result in more expertise about a particular type of product at the expense of the functional expertise that comes from a functional methodology. For warehouses and DCs, firms must decide whether they will primarily cross-docking facilities or storage facilities. At cross-docking facilities, inbound trucks from suppliers are unloaded; the product is broken into smaller lots, and is quickly loaded onto storebound trucks. Each store-bound truck carries a variety of products, some from each inbound truck. For storage facilities, firms must decide on the products to be stored at each facility. 3.16.1.2 Location Deciding where a company will locate its facilities constitutes a large part of the desing of a supply chain. A basic trade-off here is whther to centralize in order to gain economies of scale or to decentralize to become more responsive by being closer to the customer. Companies must also consider a host of issues related to the various characteristics of the local area in which the facility is situated. These include

macroeconomic factors, quality of workers, cost of workers, cost of facility, availability of infrastructure, proximity to customers, the location of that firm’s other facilities, tax effects, and other strategic factors. 3.16.1.3 Capacity Companies must also determine a facility’s capacity to perform its intended function(s). A large amount of excess capacity allows the facility to be very flexible and to respond to wide swings in the demands placed on it. Excess capacity, however, costs money and therefore can decrease efficiency. A facility with little excess capacity will likely be more efficient per unit of product it produces than one with a lot of unused capacity. The high-utilization facility, however, will have difficulty responding to demand fluctuations. Therefore, a company must make a trade-off to determine the right amount of capacity to have at each of its facilities. 3.16.1.4 Facility-Related Metrics Manager should track the following facility-related metrics that influence supply chain performance; •

Capacity measures the maximum amount a facility can process.

•

Utilization measures the fractional capacity that is currently being used in the facility. Utilization affects both the unit cost of processing and associated delays. Unit costs tend to decline and delays increase with increase in utilization.

•

Theoretical flow/ cycle time of production measures the time required to process a unit if there are absolutely no delays at any stage.

•

Actual average flow/ cycle time measures the average actual time taken for all units processed over a specified duration such as a week or month. The actual flow/ cycle time includes the theoretical time and any delays.

•

Flow time efficiency is the ratio of the theoretical flow time to the actual average flow time.

•

Product variety measures the number of products/ product families processed in a facility. Processing costs and flow times are likely to increase with product variety.

•

Processing/ set up / down/ idle time measures the fraction of time that the facility was processing unit, being set up to process units, unavailable because it was down, or idle because it had no units to process.

•

Production service level measures the fraction of production orders completed on time and in full.

3.16.2 Components of Inventory Decisions The major inventory related decisions that supply chain managers must make to effectively create more responsive and more efficient supply chains are: 3.16.2.1 Cycle Inventory Cycle inventory is the average amount of inventory used to satisfy demand between receipts of supplier shipments. The size of the cycle inventory is a result of the production, transportation, or purchase of material in large lots. Companies produce or purchase in large lots to exploit economies of scale in the production, transportation, or purchasing process. With the increase in lot size, however, also comes an increase in carrying cost. As an example of a cycle stock decision, consider an online book retailer. This retailer’s sales average around 10 truckloads of books a month. The cycle inventory decisions the retailer must make are how much to order for replenishment and how often to place these orders. The e-retailer could order to truckloads once each month or it could one truckload every three days. The basic trade-off supply chain managers face is the cost of holding larger lots of inventory (when cycle inventory I high) versus the cost of ordering product frequently (when cycle inventory is low). 3.16.2.2 Safety Inventory Safety inventory is inventory held in case demand exceeds expectation; it is held to counter uncertainty. If the world were perfectly predictable, only cycle inventory would be needed. Because demand is uncertain and may exceed expectations, however, companies hold safety inventory to satisfy an unexpectedly high demand. Managers face a key decision when determining how much safety inventory to hold. Choosing safety inventory involves making a trade-off between the costs of having too much inventory and the costs of losing sales due to not having enough inventory. 3.16.2.3 Seasonal Inventory

Seasonal inventory is built up to counter predictable variability in demand. Companies using seasonal inventory, build up inventory in periods of low demand and store it for periods of high demand, when they will not have the capacity to produce all that is demanded. Managers face key decision in determining whether to build seasonal inventory and if they do build it, in deciding how much to build. If a company can rapidly change the rate of its production system at very low cost, then it may need seasonal inventory, because the production system can adjust to a period of high demand without incurring large costs. However, if changing the rate of production is expensive (for example, when workers must be hired or fired), then a company would be wise to establish a smooth production rate and build up its inventory during periods of low demand. Therefore, the basic trade-off supply chain managers face in determining how much seasonal inventory to build is the cost of carrying the additional seasonal inventory versus the cost of having more flexible product rate. 3.16.2.4 Level of Product Availability Level of product availability is the fraction of demand that is served one time from product held in inventory. A high level of product availability provides a high level or responsiveness but increase costs because a lot of inventory is held but rarely used. In contrast, a low level of product availability lowers inventory holding costs but results in a higher fraction of customers who are not served on time. The basic trade-off when determining the level of product availability is between the cost of inventory to increase product availability and the loss from not serving customer on time 3.16.2.5 Inventory-Related Metrics A manager should track the following inventory-relate metrics that influence supply chain performance: •

Average inventory measures the average amount of inventory carried. Average inventory should be measured in units, days of demand and financial value

•

Products with more than a specified number of days of inventory identifies a product for which the firm is carrying a high level of inventory. This metric can be used to identify products that are in oversupply or identify reasons that justify the high inventory such as price discounts or being a very slow mover.

•

Average replenishment batch size measures the average amount of each replenishment product. The batch size should be measured by SKU in terms of both units and days of demand. It can be estimated by averaging more time the difference between the maximum and the minimum inventory (measured in each replenishment cycle) on hand.

•

Seasonal inventory measures the amount of both cycle and safety inventory that is purchased solely due to seasonal changes and demand.

•

Fill rate measures the fraction of orders/demand that were met on time from inventory. Fill rate should not be averaged over time but over a specified number of units of demand (say every thousand, million etc)

•

Fraction of time out of stock measures the fraction of time that a particular SKU had zero inventory. This fraction can be used to estimate the demand during the stock out period.

3.16.3 Components of Transportation Decisions The key components of transportation that companies must analyze when designing and operating a supply chain are: 3.16.3.1 Design of Transportation Network The transportation network is the collection of transportation modes, locations, and routes along which product can be shipped. A company must decide whether transportation from a supply chain source will be direct to the demand point or will go through intermediate consolidation points. Design decisions also include whether multiple supply or demand points will be included in a single run or not. Finally, companies must also decide the st of transportation modes that will be used. 3.16.3.2 Choice of Transportation Mode The mode of transportation is the manner in which a product is moved from one location in the supply chain network to another. Companies can choose between air, truck, rail, sea, and pipeline as modes of transport for products. Today, information goods can also be sent via internet. Each mode has different characteristics with respect to the speed, size of shipments (individual parcels to pallets to full trucks to entire ships), cost of shipping, and flexibility that lead companies to choose one particular mode over the others.

3.16.3.3 Transportation-related Metrics A manager should track the following transportation-related metrics that influence supply chain performance. •

Average inbound transportation cost typically measures the cost of bringing product into a facility as a percentage of sales or cost of goods sols (COGS). Ideally, this cost should be measured per unit brought in, but this can be difficult. The inbound transportation cost is generally included in COGS. It is useful to separate this cost by supplier.

•

Average incoming shipment size measures the average number of units or dollars in each incoming shipment at a facility.

•

Average inbound transportation cost per shipment measures the average transportation cost of each incoming delivery. Along with the incoming shipment size, this metric identifies opportunities for greater economies of scale in inbound transportation.

•

Average outbound transportation cost measures the cost of sending product out of a facility to the customer. Ideally, this cost should be measured per unit shipped, but it is often measured as a percentage of sales. It is useful to separate this metric by customer.

•

Average outbound shipment size measures the average number of units or dollars on each outbound shipment at a facility.

•

Average outbound transportation cost per shipment measures the average transportation cost of each outgoing delivery. Along with the outgoing shipment size, this metric identifies opportunities for greater economies of scale in outbound transportation.

•

Fraction transported by mode measures the fraction of transportation (in units or dollars) using each mode of transportation. This metric can be used to estimate if certain modes are overused or underutilized.

3.16.4 Components of Information Decisions The following components are identified which a company must analyze in order to increase efficiency and improve responsiveness within its supply chain: 3.16.4.1 Push Versus Pull

When designing processes of the supply chain, managers must determine whether these processes are part of the push or pull phase in the chain. Push systems generally require information in the form of elaborate Material Requirements Planning (MRP) systems to take the master production schedule and roll it back, creating schedules for suppliers with part types, quantities, and delivery dates. Pull systems require information on actual demand to be transmitted extremely quickly throughout the entire chain so that production and distribution of products may reflect the real demand accurately. 3.16.4.2 Coordination and Information Sharing Supply chain coordination occurs when all stages of a supply chain work toward the objective of maximizing total supply chain profitability based on shared information. Lack of coordination can result in significant loss of supply chain profit. Coordination among different stages in a supply chain requires each stage to share appropriate information with other stages. For example, if a supplier is to produce the right parts in a timely manner for a manufacturer in a pull system, the manufacturer must share demand and production information with the supplier. Information sharing is this crucial to the success of a supply chain. 3.16.4.3 Forecasting and Aggregate Planning Forecasting is the art and science of making projections about what future demand and conditions will be. Obtaining forecasting information frequently means using sophisticated techniques o estimate future sales or market conditions. Managers must decide how they will make forecasts and to what extent they will rely on forecasts to make decisions. Companies often use forecasts both on a tactical level to schedule production and on strategic level to determine whether to build new plants or even whether to enter a new market. Once a company creates a forecast, the company needs a plan to act on this forecast. Aggregate planning transforms forecasts into plans of activity to satisfy the projected demand. A key decision managers face is how to collaborate on aggregate planning throughout the entire supply chain. The aggregate plan becomes a critical piece of information to be shared across the supply chain because it affects both the demand on a firm’s suppliers and the supply to its customers.

3.16.4.4 Information-related Metrics A manager should track the following information-related metrics that influence supply chain performance. •

Forecast horizon identifies how far in advance of the actual event a forecast is made. The forecast horizon must equal the lead time of the decision that is driven by the forecast.

•

Frequency of update identifies how frequently each forecast is updated. The forecast should be updated somewhat more frequently than a decision will be revisited, so that large changes can be flagged and corrective action taken.

•

Forecast error measures the difference between the forecast and actual demand. The forecast error is a measure of uncertainty and drives all responses to uncertainty such as safety inventory or excess capacity.

•

Seasonal factors measure the extent to which the average demand in season is above or below the average in the year.

•

Variance

from

plan

identifies

the

difference

between

the

planned

production/inventories and the actual values. These variances can be used to raise flags that identify shortages and surpluses. •

Ratio of demand variability to order variability measures the standard deviation of incoming demand and supply orders places. A ratio less than one potentially indicates the existence of the bullwhip effect.

3.16.5 Components of Sourcing Decisions The key sourcing decisions that are made within a firm are as under: 3.16.5.1 In-house or Outsource The most significant sourcing decision for a firm is whether to perform a task in-house or outsource it to a third party. This decision should be driven in part by its impact on the total supply chain profit. It is best to outsource if the growth in total supply chain profit is significant with little additional risk. Within a task such as transportation, managers must decide whether to outsource all of it, outsource only the responsive component, or outsource only efficient component. Once again, the decision should be based on part on the gowth in total supply chain profitability. 3.16.5.2 Supplier selection

Managers must decide on the number of suppliers they will have for a particular activity. They must then identify the criteria along which suppliers will be evaluated and how they will be selected. For the selection process, managers must decide whether they will use direct negotiations or resort to an auction. Is an auction is used, it must be structured to ensure the desired outcome. 3.16.5.3 Procurement Procurement is the process in which the supplier sends product in response to customer orders. Managers must decide on the structure of procurement of direct as well as indirect materials, and strategic as well as general materials. In each case, it is important to identify the critical mechanism for increasing supply chain profits, for example, a firm should set up procurement for direct materials to ensure good coordination between the supplier and buyer. 3.16.5.4 Sourcing-related metrics A manager should track the following sourcing-related metrics that influence supply chain performance. •

Days payable outstanding measures the number of days between when a supplier performed a supply chain task and when it was paid.

•

Average purchase price measures the average price at which a good or service was purchased during the year. The average price should be weighted by the quantity purchased at each price.

•

Range of purchase price measures the fluctuation in purchase price during a specified period. The goal is to identify if the quantity purchased correlated with the price.

•

Average purchase quantity measures the average amount purchased per order. The goal is to identify whether a sufficient level of aggregation is occurring across locations when placing an order.

•

Fraction on-time deliveries measures the fraction of deliveries from the supplier that were on time.

•

Supply quality measures the quality of product supplied.

•

Supply fund time measures the average time between when an order is placed and the product arrives.

3.16.6 Components of Pricing Decisions The following key components of pricing decisions are identified that affect supply chain performance. 3.16.6.1 Pricing and Economies of Scale Most supply chain activities display economies of scale. Changeovers make small production runs more expensive per unit than large production runs. Loading and unloading costs make it cheaper to deliver a truckload to one location than four. In each case, the provider of the supply chain activity must decide how to price it appropriately to reflect these economies of scale. A commonly used approach is to offer quantity discounts. Care must be taken to ensure that quantity discounts offered are consistent with the economies of scale in the underlying process. Otherwise, there is a danger of customer orders being driven primarily by the quantity discounts even though the underlying process does not have significant economies of scale. 3.16.6.2 Everyday Low Pricing Versus High-Low Pricing A firm such as Costco practices everyday low pricing at its warehouse stores, keeping prices steady over time. Costco will go to the extent of not offering any discount on damaged books to ensure its everyday low pricing strategy. In contrast, most supermarkets practice high-low pricing and offer steep discounts on a subset of their product every week. The Costco pricing strategy results in relatively stable demand. The high-low pricing strategy results in a peak during the discount week, Often followed by a steep drop in demand during the following weeks. The two pricing strategies lead to very different demand profiles that the supply chain must serve. 3.16.6.3 Fixed Price Versus Menu Pricing A firm must decide whether it will charge a fixed price for its supply chain activities or have a menu with prices that vary with some other attribute, such as the response time or location of delivery. If marginal supply chain costs or the value to the customer vary significantly along some attribute, it is often effective to have a pricing menu. 3.16.6.4 Pricing-Related Metrics A manager should track the following pricing-related metrics. With menu pricing, each metric should be tracked separately for each segment in the menu.

•

Profit margin measures profit as a percentage of revenue. A firm needs to examine a wide variety of profit margin metrics to optimize its pricing, including dimensions such as type of margin (gross, net, etc.), scope (SKU, product line, division, firm), customer type, and others.

•

Days sales outstanding measures the average time between when a sale is made and when the cash is collected.

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Incremental fixed cost per order measures the incremental costs that are independent of the size of the order. These include changeover costs at a manufacturing plant or order processing or transportation costs that are incurred independent of shipment size at a mail-order firm.

•

Incremental variable cost per unit measures the incremental costs that vary with the size of the order. These include packing costs at a mail-order firm or variable production costs at a manufacturing plant.

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Average sale price measures the average price at which a supply chain activity was performed in a given period. The average should be obtained by weighting the price with the quantity sold at that price.

•

Average order size measures the average quantity per order. The average sale price, order size, incremental fixed cost per order, and incremental variable cost per unit help estimate the contribution from performing the supply chain activity.

•

Range of sale price measures the maximum and the minimum of sale price per unit over a specified time horizon.

•

Range of periodic sales measures the maximum and the minimum of the quantity sold per period (day/week/month) during a specified time horizon. The goal is to understand any correlation between sales and price and any potential opportunity to shift sales by changing price over time.

3.16.7 Demand Forecasting in a Supply Chain Demand Forecasting is the activity of estimating the quantity of a product or service that consumers will purchase. Demand forecasting involves techniques including both informal methods, such as educated guesses, and quantitative methods, such as the use of historical sales data or current data from test markets. Demand forecasting may be used in making pricing decisions, in assessing future capacity requirements, or in making decisions on whether to enter a new market.

3.16.8 Necessity for Forecasting Demand Often forecasting demand is confused with forecasting sales. But, failing to forecast demand ignores two important phenomena. There is a lot of debate in the demand planning literature as how to measure and represent historical demand, since the historical demand forms the basis of forecasting. Should we use the history of outbound shipments or customer orders or a combination of the two to proxy for demand. 3.16.8.1 Stock Effects The effects that inventory levels have on sales. In the extreme case of stock-outs, demand coming into your store is not converted to sales due to a lack of availability. Demand is also untapped when sales for an item are decreased due to a poor display location, or because the desired sizes are no longer available. For example, when a consumer electronics retailer does not display a particular flat-screen TV, sales for that model are typically lower than the sales for models on display. And in fashion retailing, once the stock level of a particular sweater falls to the point where standard sizes are no longer available, sales of that item are diminished. 3.16.8.2 Market Response Effects The effect of market events that are within and beyond a retailer’s control. Demand for an item will likely rise if a competitor increases the price or if you promote the item in your weekly circular. The resulting sales increase reflects a change in demand as a result of consumers responding to stimuli that potentially drive additional sales. Regardless of the stimuli, these forces need to be factored into planning and managed within the demand forecast. In this case demand forecasting uses techniques in causal modeling. Demand forecast modeling considers the size of the market and the dynamics of market share versus competitors and its effect on firm demand over a period of time. In the manufacturer to retailer model, promotional events are an important causal factor in influencing demand. These promotions can be modeled with intervention models or use a consensus process to aggregate intelligence using internal collaboration with the Sales and Marketing functions. 3.16.8.3 Components of a Forecast and Forecasting Methods

A company must be knowledgeable about numerous factors that are related to the demand forecast. Some of these factors are listed next. 1. Past demand 2. Lead time of product 3. Planned advertising or marketing efforts 4. State of the company 5. Planned price discounts 6. Actions that competitors have taken A company must understand such factors before it can select an appropriate forecasting methodology. For example, historically a firm may have experienced low demand for chicken noodle soup in July and high demand in December and January. If the firm decides to discount the product in July, the situation is likely to change, with some of the future demand shifting to the month of July. The firm should make its forecast taking the factor into consideration. 3.16.8.4 Forecasting Methods are Classified According to the Following Four Types: 1. Qualitative: qualitative forecasting methods are primarily subjective and rely on

human judgment. They are most appropriate when little historical data is available or when experts have market intelligence that may affect the forecast. Such methods may also be necessary to forecast demand several years into the future in a new industry. 2. Time series: Time-series forecasting methods use historical demand to make a

forecast. They are based on the assumption that past demand history is a good indicator of future demand. These methods are most appropriate when the basic demand pattern does not vary significantly from one year to the next. These are the simplest methods to implement and can serve as a good starting point for a demand forecast. 3. Causal: Causal forecasting methods assume that the demand forecast is highly

correlated with certain factors in the environment (the state of the economy, interest rates, etc.). Causal forecasting methods find their correlation between demand and environmental factors and use estimates of what environmental factors will be to forecast future demand. For example, product pricing is

strongly correlated with demand. Companies can thus use causal methods to determine the impact of price promotions on demand. 4. Simulation: simulation forecasting methods imitate the consumer choices that

give rise to demand to arrive at a forecast. Using simulation, a firm can combine time-series and causal methods to answer such questions as: what will be the impact of a price promotion? What will be the impact of competitor opening a store nearby? Airlines simulate customer buying behavior to forecast demand for higher-fare seats when there are no seats available at the lower fares. A company may find it difficult to decide which method is most appropriate for forecasting. In fact, several studies have indicated that using multiple forecasting methods to create a combined forecast is more effective than using any one method alone. 3.16.8.5 Aggregate Planning

Aggregate planning is an operational activity which does an aggregate plan for the production process, in advance of 2 to 18 months, to give an idea to management as to what quantity of materials and other resources are to be procured and when, so that the total cost of operations of the organization is kept to the minimum over that period. The quantity of outsourcing, subcontracting of items, overtime of labor, numbers to be hired and fired in each period and the amount of inventory to be held in stock and to be backlogged for each period are decided. All of these activities are done within the framework of the company ethics, policies, and long term commitment to the society, community and the country of operation. Aggregate planning has certain pre-required inputs which are inevitable. They include: •

Information about the resources and the facilities available.

•

Demand forecast for the period for which the planning has to be done.

•

Cost of various alternatives and resources. This includes cost of holding inventory, ordering cost, cost of production through various production alternatives like subcontracting, backordering and overtime.

•

Organizational policies regarding the usage of above alternatives.

"Aggregate Planning is concerned with matching supply and demand of output over the medium time range, up to approximately 12 months into the future. Term aggregate implies that the planning is done for a single overall measure of output or, at the most, a few aggregated product categories. The aim of aggregate planning is to set overall output levels in the near to medium future in the face of fluctuating or uncertain demands. Aggregate planning might seek to influence demand as well as supply." 3.16.8.6 Objectives of Aggregate Planning The aggregate planner’s main objective is to identify the following operational parameters over the specified time horizon: •

Production Rate: The number of units to be completed per unit time (such as per week or per month)

•

Workforce: the number of workers/units of capacity needed for production

•

Overtime: the amount of overtime production planned

•

Machine Capacity Level: the number of units of machine capacity needed for production

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Subcontracting: the subcontracted capacity required over planning horizon

•

Backlog: demand not satisfied in the period in which it arises but carried over to future periods

•

Inventory on Hand: the planned inventory carried over the various periods in the planning horizon

3.16.9 Design Options for a Transportation Network 3.16.9.1 Distributor Storage with Carrier Delivery Under this option, inventory is not held by manufacturers at the factories but is held by distributors / retailers in intermediate warehouses and package carriers are used to transport products from the intermediate location to the final customer. Amazon.com as well as industrial distributors like W.W. Grainger use this approach combined with drop shipping from a manufacturer. Information and product flows when using distributor storage with delivery by a package carrier are shown in Figure.

Figure 20 Distributor Storage with Carrier Delivery [Source: Sunil Chopra and Pete Meindl, Supply Chain Management]

Relative to manufacturer storage, distributor storage will require a higher level of inventory because the distributor / retailer warehouse aggregates demand uncertainty to a lower level than the manufacturer. From an inventory perspective, distributor storage makes sense for products with somewhat higher demand. Both Amazon and Grainger only stock the medium to fast moving items at their warehouse with slower moving items stocked further upstream. In some instances, postponement can be implemented with distributor storage but it does require that the warehouse develop some assembly capability. Distributor storage, however, requires much less inventory than a retail network. Amazon achieves about 12 turns of inventory using warehouse storage while Borders achieves about 2 turns using retail stores. Transportation costs are somewhat lower for distributor storage compared to manufacturer storage because an economic mode of transportation (e.g. truckload) can be employed for inbound shipments to the warehouse, which is closer to the customer. Unlike manufacturer storage where multiple shipments may need to go out for a single customer order with multiple items, distributor storage allows outbound orders to the customer to be bundled into a single shipment further reducing transportation cost. Transportation savings from distributor storage relative to manufacturer storage increase for faster moving items.

Compared to manufacturer storage, facility costs are somewhat higher with distributor storage because of a loss of aggregation. Processing and handling costs are comparable to manufacturer storage unless the factory is able to ship to the end customer directly from the production line. In that case, distributor storage will have higher processing costs. From a facility cost perspective, distributor storage is not appropriate for extremely slow moving items. The information infrastructure needed with distributor storage is significantly less complex than that needed with manufacturer storage. The distributor warehouse serves as a buffer between the customer and the manufacturer, decreasing the need to coordinate the two completely. Real time visibility between customers and the warehouse is needed, whereas real time visibility between the customer and the manufacturer is not. Visibility between the distributor warehouse and manufacturer can be achieved at a much lower cost than real time visibility between the customer and manufacturer. Response time with distributor storage is better than with manufacturer storage because distributor warehouses are, on average, closer to customers and the entire order is aggregated at the warehouse when shipped. Amazon, for example, processes all warehouse-stored items within a day and it then takes 3-7 business days using ground transportation for the order to reach the customer. Grainger processes customer orders on the same day and has enough warehouses to deliver most orders next day using ground transport. Warehouse storage will limit to some extent the variety of products that can be offered. Grainger does not store very low volume items at its warehouse, relying on manufacturers to drop ships those products to the customer. Customer convenience is high with distributor storage because a single shipment reaches the customer in response to an order. Order visibility becomes easier than with manufacturer storage because there is a single shipment from the warehouse to the customer and only one stage of the supply chain is directly involved in filling the customer order. Return ability is better than with manufacturer storage because all returns can be processed at the warehouse itself. The customer also has to return only one package even if the items are from several manufacturers. The performance of distributor storage with carrier delivery is summarized in Table.

Distributor storage with carrier delivery is well suited for medium to fast moving items. Distributor storage also makes sense when customers want delivery faster than offered by manufacturer storage but do not need it immediately. Distributor storage can handle somewhat lower variety than manufacturer storage but can handle a much higher level of variety than a chain of retail stores. 3.16.9.2 Distributor Storage with Last Mile Delivery

Last mile delivery refers to the distributor / retailer delivering the product to the customer's home instead of using a package carrier. Webvan, Peapod, and Albertson’s have used last mile delivery in the grocery industry. Unlike package carrier delivery, last mile delivery requires the distributor warehouse to be much closer to the customer, increasing the number of warehouses required. The warehouse storage with last mile delivery network is as shown in Figure.

Figure 21 Distributor Storage With Last Mile Delivery [Source: Sunil Chopra and Pete Meindl, Supply Chain Management]

Distributor storage with last mile delivery requires higher levels of inventory than all options other than retail stores, because it has a lower level of aggregation. From an inventory perspective, warehouse storage with last mile delivery is suitable for relatively fast moving items where disaggregation does not lead to a significant increase of inventory. Staple items in the grocery industry fit this description. Transportation costs are highest using last mile delivery. This is because package carriers aggregate delivery across many retailers and are able to obtain better economies of scale than available to a distributor / retailer attempting last mile delivery. Delivery costs (including picking and transportation) can be as high as $30-$40 per home delivery in the grocery industry. Last mile delivery may be somewhat cheaper in dense cities. Transportation costs may also be justifiable for bulky products where the customer is willing to pay for home delivery. Home delivery for water and large bags of

rice has proved quite successful in China, where the high population density has helped decrease delivery costs. Facility and processing costs are very high using this option given the large number of facilities required. Facility costs are somewhat lower than a network with retail stores but much higher than either manufacturer storage or distributor storage with package carrier delivery. Processing costs, however, are much higher than a network of retail stores because all customer participation is eliminated. A grocery store doing last mile delivery performs all the processing until the product is delivered to the customer's home unlike a supermarket where there is much more customer participation. The information infrastructure with last mile delivery is similar to distributor storage with package carrier delivery. It requires, however, the additional capability of scheduling deliveries. Response times are faster than the use of package carriers. Product variety is generally lower than distributor storage with carrier delivery. The cost of providing product availability is higher than every option other than retail stores. The customer experience is very good using this option, particularly for bulky, hard to carry items. Order visibility is less of an issue given that deliveries are made within 24 hours. The order-tracking feature does become important to handle exceptions in case of incomplete or undelivered orders. Of all the options discussed, return ability is best with last mile delivery because trucks making deliveries can also pick up returns from customers. Returns are more expensive to handle than at a retail store where a customer can bring the product back. The performance characteristics of distributor storage with last mile delivery are summarized in Table.

In areas with high labor cost, it is very hard to justify distributor storage with last mile delivery on the basis of efficiency or improved margin. It can only be justified if there is a large enough customer segment willing to pay for this convenience. In that case, an effort should be made to couple last mile delivery with an existing network to exploit economies of scale and improve utilization. An example is Albertson's use of existing grocery store facilities and labor to provide home delivery. A portion of the grocery store serves as a fulfillment center for online orders as well as a replenishment center for

the grocery store itself. This helps improve utilization and lower the cost of providing this service. Last mile delivery may be justifiable if customer orders are large enough and customers are willing to pay for this service. All home delivery companies like Peapod now charge for this service even for very large order sizes. 3.16.9.3 Manufacturer or Distributor Storage with Customer Pickup In this approach, inventory is stored at the manufacturer or distributor warehouse but customers place their orders online or on the phone and then come to designate pickup points to collect their orders. Orders are shipped from the storage site to the pickup points as needed. Examples include 7dream.comoperated by 7 Eleven Japan, which allows customers to pick up online orders at a designated store. A B2B example is W. W. Grainger where customers can pick up their order at one of the Grainger retail outlets. In the case of 7dream.com, the order is delivered from a manufacturer or distributor warehouse to the pickup location. In the case of Grainger, some items are stored at the pickup location while others may come from a central location. The information and product flows in the network for 7 Eleven Japan is as shown in Figure.

Figure 22 Manufacturer or Distributor Warehouse Storage with Customer Pickup [Source: Sunil Chopra and Pete Meindl, Supply Chain Management]

7 Eleven has distribution centers (DC) where product from manufacturers is crossdocked and sent to retail outlets on a daily basis. A retailer delivering an online order can be treated as one of the manufacturers with deliveries cross-docked and sent to the appropriate 7 Eleven outlet. Serving as an outlet for online orders allows 7 Eleven to improve utilization of its existing logistical assets. Inventory costs using this approach can be kept low with either manufacturer or distributor storage to exploit aggregation. Grainger keeps its inventory of fast moving items at pickup locations, while slow moving items are stocked at a central or warehouse or in some case the manufacturer. Transportation cost is lower than any solution using package carriers because significant aggregation is possible when delivering orders to a pickup site. This allows the use of truckload or less-than-truckload carriers to transport orders to the pickup site. In a case like 7 Eleven Japan, the marginal increase in transportation cost is small because trucks are already making deliveries to the stores and their utilization can be improved by including online orders. Facility costs are high if new pickup sites have to be built. A solution using existing sites will lower the additional facility costs. This, for example, is the case with 7dream.com and W.W. Grainger where the stores already exist. Processing costs at the manufacturer or the warehouse are comparable to other solutions. Processing costs at the pick up site are high because each order must be matched with a specific customer when they arrive. Creating this capability can increase processing costs significantly if appropriate storage and information systems are not provided. Increased processing cost at the pickup site is the biggest hurdle to the success of this approach. A significant information infrastructure is needed to provide visibility of the order until the customer picks it up. Very good coordination is needed between the retailer, the storage location, and the pickup location. A response time comparable to the use of package carriers can be achieved in this case. Variety and availability comparable to any manufacturer or distributor storage option can be provided. There is some loss of customer experience because unlike the other options discussed, customers must come and pick up their orders. On the other hand, customers who do not want to pay online can pay by cash using this option. In

countries like Japan where 7 eleven has over 8,000 outlets, it can be argued that the loss of customer convenience is small because most customers are close to a pickup site and can collect their order at their own convenience. In some cases, this option can be considered more convenient because it does not require the customer to be at home at the time of delivery. Order visibility is extremely important for customer pickups. The customer must be informed when the order has arrived and the order should be easily identified once the customer arrives to pick it up. Such a system will be hard to implement because it requires integration of several stages in the supply chain. Returns can potentially be handled at the pickup site. The problem with some existing sites such as 7 Eleven stores is that they are not equipped to accept and process returns for products not sold at the stores. From a transportation perspective, however, return flows can be handled using the delivery trucks. For customers, returning a product will be easy because they have a physical location to bring it to. Overall, return ability is fairly good using this option. The performance characteristics of manufacturer or distributor storage with consumer pickup sites are summarized in Table.

The main advantage of a network with consumer pickup sites is that it can lower delivery cost, thus expanding the set of products sold as well as customers served online. The major hurdle is the increased handling cost at the pickup site. Such a network is likely to be most effective if existing locations such as convenience or grocery stores are used as pickup sites because such a network improves the economies from existing infrastructure. Unfortunately, such sites are typically designed to allow the customer to do the picking and will need to develop the capability of picking a customer specific order.

3.16.9.4 Retail Storage with Customer Pickup In this option, inventory is stored locally at retail stores. Customers either walk into the retail store or place an order online or on the phone, and pick it up at the retail store. Examples of companies that offer multiple options of order placement include Albertsons.com. Albertsons uses part of the facility as a grocery store and part of the facility as an online fulfillment center. Customers can walk into the store or order online. A B2B example is W. W. Grainger where customers can order online, by phone, or in person and pick up their order at one of the Grainger retail outlets. Albertson’s stores its inventory at the pickup location itself. In the case of Grainger, some items are stored at the pickup location while others may come from a central location. Local storage increases inventory costs because of lack of aggregation. For very fast moving items, however, there is marginal increase in inventory even with local storage. Albertson's uses local storage given that most of its products are relatively fast moving and are being stocked at the supermarket in any case. Similarly, Grainger keeps its inventory of fast moving items at pickup locations, while slow moving items are stocked at a central warehouse. Transportation cost is much lower than other solutions because inexpensive modes of transport can be used to replenish product at the retail store. Facility costs are high because many local facilities are required. A minimal information infrastructure is needed if customers walk into the store and place their order. For online orders, however, a significant information infrastructure is needed to provide visibility of the order until the customer picks it up. Very good response times can be achieved in this case because of local storage. For example, both Albertson’s and Grainger offer same day pickup from their retail locations. Product variety stored locally will be lower than other options. It is more expensive than all other options to provide a high level of product availability. Order visibility is extremely important for customer pickups where orders are placed online or on the phone. Returns can be handled at the pickup site. Overall, return ability is fairly good using this option.

The performance characteristics of a network with customer pickup sites and local storage (such as retail stores) are summarized in Table.

The main advantage of a network with local storage is that it can lower the delivery cost and provide a faster response than other networks. The major disadvantage is the increased inventory and facility costs. Such a network is best suited for fast moving items or items where customers value the rapid response. 3.16.9.5 Direct Shipping with Milk Runs

A milk run is a route on which a truck either delivers product from a single supplier to multiple retailers or goes from multiple suppliers to a single buyer location, as shown in the figure below:

Figure 23 Direct Shipping with Milk Runs, Single supplier to multiple retailers

Figure 24 Direct shipping with milk runs, multiple suppliers to single retailer [Source: Sunil Chopra and Pete Meindl, Supply Chain Management]

In direct shipping with milk runs, a supplier delivers directly to multiple buyer locations on a truck or a truck picks up deliveries destines for the same buyer location from many suppliers. When using this option, a supply chain manager has to decide on the routing of each milk run.

3.17 Lean Supply Chain Management Another important concept in supply chain is effectively managing the waste generated during supply chain operations particularly production also referred to as Lean Supply Chain management. Lean supply chain management is not exclusively for those

companies who manufacture products, but by businesses who want to streamline their processes by eliminating waste and non-value added activities. Companies have a number of areas in their supply chain where waste can be identified as time, costs or inventory. To create a leaner supply chain companies must examine each area of the supply chain. The study of different aspects when considering lean manufacturing or lean supply chain is illustrated as follows: 1. Procurement Many businesses have complex purchasing operations. Large companies often have corporate purchasing groups as well as local purchasing. This can lead to vendors being given multiple contracts leading to variations in prices depending on location. Companies that practice lean supply chain management reduce their procurement function so that each vendor has one point of contact, one contract and offers one price for all locations. Businesses are looking to new technologies to assist them in improving procurement processes. These include internet based purchasing that allows requisitioners to purchase items from vendor’s catalogs containing companywide contract prices. Changes in payment options to vendors can also streamline processes. Companies that use a two-way match, which is payment on receipt rather than payment on invoice, will reduce resources in their purchasing department as well as improve supplier relationships. 2. Manufacturing Lean supply chain management gained popularity in the manufacturing area as this is where significant improvement can be achieved. Manufacturing processes can be improved to reduce waste and resources while maintaining operational performance. Companies who have adopted lean supply chain practices have examined each of their routings, bill of materials and equipment to identify where improvements can be achieved. 3. Warehousing Warehouse processes should be examined to find areas of eliminating waste of resources and non-value added steps. One area the companies should always be working on is the reduction of unnecessary inventory. The accumulation of inventory requires resources to store and maintain it. By reducing unnecessary

inventory, a company can minimize warehousing space and handling, in turn reducing overall costs. 4. Transportation Businesses who want to implement lean processes often look to their transportation procedures to see where they can be streamlined. In many instances companies find that their efforts to improve customer satisfaction leads to poor shipping decisions. Orders are shipped without combining additional orders to minimize costs or expensive shipping options are selected because of a customer request. Businesses often find that they are using a number of shippers unnecessarily when they could be reducing their shipping options and reduce overall costs. Lean supply chain management requires businesses to examine every process in their supply chain and identify areas that are using unnecessary resources, which can be measured in dollars, time or raw materials. This will improve the company’s competitiveness as well as improve the company’s overall profitability. 3.18 Reducing Waste in the Supply Chain Businesses are examining every area of their supply chain to reduce costs. Reducing waste has become a key component of any cost reduction program that is implemented. There are a number of processes that can be used in order to reduce waste in a company’s supply chain. 1. Product Design Many companies are examining the design of their products to identify where the use of raw materials can be reduced or expensive materials be replaced. Indeed many businesses are reviewing each component to identify whether it can be manufactured or purchased more cheaply. When designing product packaging options, companies are examining cheaper and less wasteful materials. 2. Resource Management Each production process should be examined to minimize the waste of raw materials. In manufacturing operations processes that waste material that cannot be recycled or reused must be redesigned. Even in processes that do produce

waste that can be recycled should be examined due to the costs in recycling processes. 3. Use of Scrap Material As well as minimizing the waste of raw materials in manufacturing processes, the use reuse of waste material can be expanded. Improvements in the technology of reclaiming waste material has meant that companies that previously discarded waste products now have the ability to reuse that material. As the recycling technology becomes more available the costs will inevitably fall helping more businesses with waste issues. 4. Improving Quality Quality control is built into all manufacturing processes but is usually focused on the finished product rather than minimizing waste. Quality management should include the goal of minimizing the waste of raw materials as well as producing a quality product. Improving the overall quality of a company’s manufacturing process will reduce waste overall as it will increase the quantity of finished goods that pass quality inspection. When companies are considering waste minimization programs, they will find that some costs will be required in the implementation. However as those programs come online, the reduction in waste will produce cost savings greater than the initial investment. The implementation of waste minimization programs has been successful in improving company’s products as well as reducing overall costs.

Chapter 4

Supply Chain of Pepsi Haidri Beverages

Chapter 4 Supply Chain of Pepsi Haidri Beverages 4.1 Understanding Supply Chain of Haidri Beverages As we have already discussed the concept of supply chain in detail; it would now be much easier to understand the current supply chain operated manually by Haidri beverages.

4.2 Supply Chain Strategy or Design In order to ensure a good supply chain strategy, Haidri Beverages plans two years in advance. It has several contracts with manufacturers, and receives raw material on a convenient basis. The company also decides where production plants are to be placed. Haidri has production plants at Peshawar and Islamabad. The production process is 65% automated. The company has to provide and manage transport for the delivery of products as well as the arrangement of third party services for the procurement of products. The shipping department handles orders and the transport department decides the vehicles for safe delivery. Material planning and sourcing is carried out as well. Sources of supply of raw material both local and foreign are identified and terms and conditions are negotiated. Capacity planning is also done at this stage. Sales forecasting and production planning depends upon the capacity of the organization with respect to: 1. Production (180,000 converted 250 ML crates per day). 2. Storage: Raw and packing (80,000 Sq Ft) 3. Storage: Finished goods (120,000 Sq Ft) Haidri has a procurement budget of Rs 2.9 billion. Approved suppliers cannot go beyond this budget. The supplier is audited by the most cost efficient quality control department. Distributors are also decided by the company, keeping in mind past performances. The company has increased its distribution capacity from one to six filling lines during the last few years lending it a competitive edge over Coca Cola.

4.3 Supply Chain Planning As the above configurations have been set, planning must be done within the above stated constraints. The goal of planning is to maximize the supply chain surplus. Planning establishes parameters within which a supply chain will function over a period of time. Companies start the planning phase with a forecast for the coming year of demand. Pepsi carries out sales forecasting for local demand as well as for export purposes to countries such as Afghanistan. The annual sales target is conveyed to the supply chain department of Haidri Beverages. Planning is carried out on a monthly, weekly and daily basis at Haidri.

4.4 Supply Chain Operation Company makes decision regarding individual customer orders. The goal of supply chain operations is to handle incoming customer orders in the best possible manner. During this phase, firms allocate inventory or production to individual orders, set a date that an order is to be filled, generate pick lists at a warehouse, allocate to shipping, set delivery and so on. There is less uncertainty about demand. At Haidri, the production, sales and supply chain departments get together to decide the inventory usually on a weekly basis.

4.5 Process Views of a Supply Chain Pepsi has a seasonal demand. Just in time concept is applicable in non-seasonal period and not applicable in seasonal period. All processes that are part of the procurement cycle, manufacturing cycle, replenishment cycle, and customer order cycle are push processes. Pepsi Sales order and processing: The Shipping Manager receives sales order from Sales Team, distributors through telephone, fax & email one day before dispatch. The sales are made to base distributors on advance payment against orders then shipping manager plans according to the demand of distributors on daily basis.

4.6 Competitive Edge and Supply Chain Strategies

Figure 25 Supply Chain Strategy for Pepsi

There are three major sustainable advantages that give PepsiCo a competitive edge as they operate in the global marketplace: 1. Big, muscular brands, 2. Proven ability to innovate and create differentiated products and 3. Powerful go-to-market systems. PepsiCo's overall mission is to increase the value of shareholder's investment. They do this through sales growth, cost controls and wise investment of resources. They believe their commercial success depends upon offering quality and value to their consumers and customers; providing products that are safe, wholesome, economically efficient and environmentally sound; and providing a fair return to their investors while adhering to the highest standards of integrity. A customer while purchasing a bottle of Pepsi will consider product quality, price and availability of the product. Thus, Pepsi in Pakistan particularly focuses its competitive strategy as to producing sufficient variety, reasonable prices, and the availability of the product.

4.7 Supply Chain Strategy Step 1: The Customer and Supply Chain Uncertainty a) Identifying Customer Needs Haidri needs to understand the customer needs for each targeted segment and the uncertainty the supply chain faces in satisfying these needs. As Haidri deals with

beverages, which are a fast moving consumer good, it knows the requirements of consumers. Pepsi is considered as a drink which is refreshing during summer, and taken regularly during winter, with demand hiking around festivals such as Eid and occasions such as weddings. Haidri caters to both cities and rural areas. It understands the needs of both. As demand for beverages is seasonal, the quantity of product needed for each lot is taken care of with past demand in mind. Consumers generally require a small response time, high service level, reasonable price and some variety (for example health conscious people favor diet versions of sodas). b) Demand Uncertainty and Implied Demand Uncertainty Demand for Pepsi varies by product. For example there is a greater demand for “Pepsi” as compared to “Mirinda Apple,” which is new. Hence, Pepsi has a low demand uncertainty as compared to “Mirinda Apple.” The product “Pepsi” is approaching its maturity stage in the PLC whereas “Mirinda Apple” is in the introductory stage. Pepsi’s implied demand uncertainty varies with the product type as well as the customer needs. Due to decreased lead time (the customer may purchase its competitor’s product if Pepsi is not available at that time), need for greater variety and higher level of service, implied demand uncertainty increases. This is true for cities where unmet demand by Pepsi is met by Coca Cola, Amrat Cola and other such competitors. Supply uncertainty is also affected by new products. New products have higher supply uncertainty.

Step 2: Understanding the Supply Chain Capabilities

I Highly S Efficient Highly o n Responsive m te w o h w a n t s R E e f s f p i o c n i s ie n v t e

P E P S I i n c i t i e s

Figure 26

The efficiency and responsiveness varies according to the consumer needs, implied demand uncertainty, product type and market segments. In remote areas the company focuses on being somewhat efficient as other modes of transportation could turn the product to be highly expensive. According to the company it does not deal with

distributors who do not have 20 to 25 vehicles, therefore as the company has focus on cost reduction, uses slow and inexpensive modes of transportation, the demand is certain, and uses economies of scale in production, the product Pepsi is more inclined towards being somewhat efficient. In cities, the company focuses its attention on being highly responsive as Pepsi has to meet short lead time, meet a high service level, handle a large variety of products and respond to wide ranges of quantity demanded especially at the retail stage.

Step 3: Achieving the Strategic Fit Making one stage more responsive allows the other stage to focus on being more efficient. The Pepsi supply chain assign different roles to its different stages, the company has to decide either to transfer the responsiveness to the manufacture stage or to the retailer stage. While discussing the Pepsi’s supply capability it is seen that Pepsi tends to be more responsive in the cities and a bit less in towns. Therefore, transferring the responsiveness to the retailer and distributor, allowing them to face the higher implied demand uncertainty. This in return allows the manufacturer and supplier to be more efficient. At the same time, multiple beverage types contribute to a broader product portfolio causing Haidri to adjust its strategies accordingly; tailoring the supply chain to best meet the needs of each beverage demand.

4.8 Distribution Channels ➢ Direct distribution: ○ Delivery of post mix cylinders & handling of key accounts: The key accounts are different wholesalers, restaurants and hotels like Pizza Hut, KFC, Metro which serve as a place for key sale. These are known as national key accounts and are very important in terms of competition. ○ Export Parties ➢ Indirect distribution: ○ Through Base market distributors ○ Through Outstation distributors

Haidri uses light and heavy vehicles for safe delivery of goods to the distributors for timely delivery. It follows the just in time concept which is applicable in Non-seasonal period and not applicable in the seasonal period.

4.9 Review and Revise Distribution This is usually done through taking over key revenue areas. If the distributor does not achieve its sales target, the distribution is taken back and an addition of new distributor is done. Therefore Pepsi’s supply is low supply uncertainty. Some of its supply source capabilities are: ➢ Less breakdowns ➢ High quality ➢ Flexible supply capacity ➢ Mature production process

4.10 Factors Influencing Distribution Network Design At the highest level, performance of a distribution network should be evaluated along two dimensions: 1. Customer needs that are met 2. Cost of meeting customer needs The customer needs that are met influence the company’s revenues, which along with cost decide the profitability of the delivery network. While customer service consists of many components we will consider those measures that are influenced by the structure of the distribution network for Pepsi. Response Time for Pepsi is minimal as the direct customers for Pepsi are the retailers and then the consumers. So with over 30 delivery trucks in Islamabad, Pepsi is readily available to every retailer within 30 minutes. Rawalpindi has 6 warehouses from where the supply to the market is done through Shehzore or small cars. Product Variety in Pepsi is large. They have made their place in the market with their unique product line ranging from chips to water. As we are dealing with Haidri, the product variety includes beverages ranging from the water Aquafina to Mountain Dew, Pepsi, Pepsi Max, 7 Up, Mirinda, Mirinda Apple & Fountain Fresh.

Customers Desire Pepsi and Mountain Dew the most; Mountain Dew has the highest consumption in Gujranwalla. Recently, the sales for 250 ml bottles has decreased but they are trying to increase it as it gives the company higher profits. Availability of Pepsi is very high and the product is always available in stock whenever an order arrives. Whenever the distributors feel that after one loading there could be a stock out they place an order to Haidri Beverages in advance just to keep the floor with enough stock in hand. The Distributors have 3 days stock as back up with them in order of any malfunctioning of the plant or other such external factors. Customer Experience for Pepsi has always been positive as they receive the product with ease and on time. The retailers are the direct customers as they place an order to the distributors. There has never been a shortage or a delay for Pepsi in Metro or Pizza Hut which are the key accounts for the company. Order Visibility in Pepsi is not really an electronic phenomenon where you can track your order through computer. Since the area covered by Pepsi Haidri Beverages is not too big and distance in miles is not too large, it is quite easy for a distributor to track his order via phone call or on-location inquiry. Returnability of Pepsi has always been very strong in a sense that unsatisfactory items can be returned and changed on the spot. This is true for both the consumers and the retailers. Pepsi has laid down a system through which they can effectively manage this requirement. The retailers are told to take down the comments and the address or phone numbers from the person who is returning the bottle. It seems at first that a customer always wants the highest level of performance along all these dimensions, in practice however this is not always the case.

4.11 Design Options for Distribution Network 4.11.1 Distributor Storage with Carrier Delivery In Pepsi inventory is not held by the manufacturers at the factories but is held by distributors/ retailers in intermediate warehouses and package carriers are used to transport the products from the intermediate location to the final customer. This requires distributor storage to keep high levels of inventory because distributor/retailer aggregates demand uncertainty to a lower level than the manufacturer. Transportation costs for Pepsi are somewhat lower because an economic mode of transportation (e.g.

truckload) can be employed for inbound shipments to the warehouse, which is closer to the customer. Facility cost is high because of a loss of aggregation and often end up with higher processing costs. The information structure needed is not that complex. The distribution warehouse serves as a buffer between manufacturer and customer. Realtime visibility between customers and warehouse is needed whereas visibility between customer and manufacturer is not required. Response time is also reduced. Customer convenience is high and order visibility with manufacturer storage becomes easier. Distributor storage is well suited for medium to fast moving goods and it can also handle higher level of variety than retail stores.

Figure 27 Distributor Storage with Carrier Delivery method is used by Pepsi Haidri Beverages [Source: Pepsi Shipment Department]

4.11.2 Value of Distribution System There are basically two components of distribution: •

Storage

•

Distribution

The storage facilities of Haidiri Beverages are designed in order to boost the timely availability of the product. For this purpose the distributors are fully equipped with facilities that are needed to ensure intensive supply of the product. The storage facilities are designed to contain the maximum possible inventory items that are needed at any given time.

Haidiri Beverages has established several storage units nearer to the market in order to boost availability. Transportation conducts inventory movement from point to point in supply chain of Haideri Beverages. It incorporates a combination of modes and routes at different stages. Transportation choices have a large impact on the responsiveness strategy of the business. Haidiri has several contracts with several distributors with multiple transport facility that ensure the maximum possible transport of inventory within a short period of time. The distribution does not work between specific supply chain components but it performs a basic function of integration amongst all supply chain components. In case of FMCG like Pepsi, the value of systematic distribution process cannot be undermined. The Pepsi distribution system linked the entire supply chain for all product categories. The distribution centers and its information network play a key role in that regard. The major object is to carefully track sales of items and offer short replenishment cycle times. The distributors offer stored deliveries too many retail outlets in the twin cities. Different products are being delivered conveniently on pre-orders. The distribution system is flexible enough to alter delivery schedule depending on customer demand. The Territory Distributor Managers maintain a contact with the retailers in order to book and place the orders. Whenever a store places an order it is immediately transmitted to the supplier through the distribution manager. Now Haidiri receives orders from all distribution centers and the shipment department delivers the orders. At the distribution centre, products from the manufacturer are delivered into different trucks and each truck makes deliveries to multiple retail stores. The number of stores depends upon the sales volume. The system works on trust and does not require the delivery person to be present when store personnel scan the delivery. This reduces the delivery time at each store. Haidiri has nine distributors in Islamabad and Rawalpindi, namely: Shan distributors, Awan distributors and Arbab Distributors. To support this distribution network they have a transport department which consists of more than 30 ten wheeler trucks in Islamabad alone. Each truck has a capacity of 1572 Pepsi cans. Rawalpindi distribution is made possible through Shehzore and Suzuki because of narrow and congested roads. The distribution department is in direct contact with the manufacturers and keeps updating inventory levels. They keep in stock spare three days stock to combat external uncertainty. The distribution department is responsible for all the variety of products in their portfolio. PepsiCo’s overall distribution network spreads throughout Pakistan

connecting the remotest of places and providing great customer service. Globalization has increased the competition that Pepsi is constantly coming up with new projects, campaigns and distribution. Pepsi with more than 180% of profits this year and with the annual review of their rates (last revised on 14th November 2007) is looking more and more competitive.

4.12 Demand Forecasting 4.12.1 Importance Demand forecasts form the basis of all supply chain planning at Haidiri Beverages. Forecasts of future demand are essential for making accurate supply chain decisions and ensuring the company’s success. Examples of such decisions include how much of the product to make, how much to inventory, how much to replenish and how much to order. 4.12.2 Ease of Forecasting Beverages are a push product. Forecasting is not easy in the beverage industry as there are possible serious fluctuations in demand due to seasonal changes in winter and summer, which cannot be easily predicted before hand or controlled. Therefore, accurate forecasting can be difficult at times, and there is a margin for error. However, having multiple product lines and daily planning procedures do decrease variability at Haidiri. Risk of error is decreased by high responsiveness. 4.11.3 Forecasting Methods At Haideri Beverages, a combination of three forecasting methods is used. These methods are used for local demand only. In the case of exports to countries such as Afghanistan, no forecasting is done as orders are taken by Haidiri one year in advance. Forecasting is done in collaboration with PepsiCo International. The following methods are used in combination for the purpose of sales and demand forecasting:1. Time-Series Method Historical demand data can be effectively used to forecast future demand. Haidiri Beverages takes into account the previous two years historical data to forecast its future demand. On this basis, a demand forecast for the coming year is made. Haidiri carries out demand forecasting for local demand.

2. Qualitative Method Using historical data and market intelligence as a guide, Haidiri’s management practices their own judgment to determine the demand forecast. Haidiri’s management forms a panel for achieving this purpose that comprises of the CEO, GM marketing, the department managers (sales, shipping, quality control, marketing etc) and specially hired supply chain analysts. A yearly demand plan is forecasted in this way which is then further divided into monthly, weekly and daily plans accordingly. 3. Causal Method Causal forecasting assumes that the demand forecast is highly correlated with certain factors in the environment such as the state of the economy, interest rates, and product pricing that can cause a change in the demand. An example is how by introducing a product variant, such as Pepsi Twist, can influence demand for the original product that is Pepsi. Promotional activities by PepsiCo International planned for the year is another example. Haidiri Beverages plans its demand forecast in collaboration with PepsiCo international, knowing that increased promotional activity leads to higher demand. 4.12.4 Forecasting in Practice Haidiri regularly updates its forecasts as and when needed. It keeps in regular touch with PepsiCo International headquarters, integrates demand planning and forecasting throughout the supply chain, and keeps an eye on market trends, seasonal variations and competitors’ strategies. This ensures that the forecast reflects the current reality and reduces risk. The updated forecast is essential for the company to carry out supply chain planning and decisions. Haidri Beverages, operating without an updated forecast is unlikely to meet the needs of its customers and its own organizational objectives.

4.13 Aggregate Planning 4.13.1 Planning Horizon

The planning horizon for Haidiri Beverages is one year that is twelve months which is further divided into quarters, months and weeks respectively. 4.13.2 Aggregate Planning Strategy Time flexibility from workforce or capacity strategy-using utilization as the lever The aggregate planning strategy used by Haidri beverages is the time-flexible strategy, as it is most suited to the beverage industry. Capacity: The plant at Haidri Beverages normally works at 12 hours a day machine capacity, but this capacity can be taken up to 24 hours a day when required, as in peak times of demand. This excess machine capacity can be utilized when needed. In order to synchronize production with demand, Haidri keeps a stable workforce by using the existing workforce and varying the number of hours worked over time. Such flexible schedules help achieve synchronization. No external workers are hired; instead, existing workers’ shifts are increased and they are paid over time. Inventory:At Haidri, production is synchronized with demand and high levels of inventory are avoided. The company maintains a month’s safety inventory as a tradeoff between the costs of having too much inventory and the costs of losing sales due to not having enough inventory. In order to save on carrying and storage costs, Haidri aims to keep lower levels of inventory, using excess machine capacity and worker overtime to adjust to demand variations as in line with this strategy. Stockouts: The costs are distributed over the workforce and stockouts are avoided. 4.13.3 Planning Constraints Haidri has to comply to national labor laws and laws governing working time and rest time (no more than fifty hours a week) as outlined in the Constitution of Pakistan and the Factories Act 1934. This is to ensure the basic rights of the workers. The company cannot exceed existing fixed capacity in production decisions with respect to: •

Production (180,000 litres converted to 250 ML crates per day).

•

Storage: Raw and packing (80,000 Sq Ft)

•

Storage: Finished goods (120,000 Sq Ft)

The company needs to comply to the capital available and has to maintain a minimum safety inventory level at all times to avoid stockouts.

4.14 Transportation Network Haidiri Beverage’s supply chain strategy is closely linked to the appropriate use of transportation. In a typical market, quick response enables supply chains to meet the customer demands for ever-shorter lead times, and to synchronize the supply to meet the peaks and troughs of demand. The major focus is to determine the processes that are to be integrated in the supply chain network with their corresponding suppliers, distribution centers and the associated transport links between them.

4.15 Modes of Transportation Land: Truck offers advantage of door to door shipment, a shorter delivery time and no transfer between pick up and delivery. Haidiri beverage uses the TL (truck load) approach. This approach provides paves the way for economies of scale and is able to meet service requirements while minimizing both trucks idle and empty travel time. Truck loads are more suited to Haidiri beverages because of the use of warehouses and larger shipments therefore making it cheap. Raw materials from the suppliers are brought using trucks; finished products are transported to distributors and then retailers using trucks as well. Haidri beverages have its own fleet of small and large trucks and vehicles for carrying goods and raw material, while the distributors also use their own vehicles. Water: This mode forms only a very small part of the total transport network. It is used for shipping of empty cans from Dubai to Port Qasim in Karachi, from where it is brought by land to the plant in Rawalpindi. Air: It is again a very small part of the entire transport network. This mode is used to fly in concentrate form New York to Lahore, from where it is transported by land to a storage facility in Hatter and collected from there by Haidiri Beverages’ own trucks. The shipping department is in charge for storage and subsequent displacement of the product orders. The inventory capacity is being utilized and maintained in coordination with the production department and is based on the term production estimates.

4.16 Design Options for a Transportation Network 4.16.1 Shipment via central DC with inventory storage using milk-runs: This is the main mode used for transporting goods to consumers who are far away. Products are transferred to the distribution center in a particular region and are stored there. Smaller trucks then carry these products to the local retailers as per demand in smaller vehicles using milk runs. This method is cost effective because it saves on high transport cost that would have been involved in transporting to each retailer directly form the supplier, and also prevents stockouts because inventory is maintained closer to the retail outlets.

D.C

Haidiri Beverages Figure 7 (Shipping via Central DC)

4.16.2 Direct Shipping: This method is used for transporting products to key account holders such as KFC and Pizza Hut. Haidri transports to them directly. Diagram in Appendix.

4.16.3 Direct Shipping with Milk-Runs: This method is used for transporting post mix cylinders to retailers within the Islamabad/Rawalpindi region for fountain fresh Pepsi. The shipment is made in milk runs.

4.17 Sourcing Decisions in Supply Chain For Haidiri Beverages, outsourcing results in the supply chain function being performed by a third party. It is in fact one of the most important factors facing the firm. Raw material for production and packaging is being outsourced through contracts. Inbound and outbound transportation of products from the manufacturing place to the distribution center and then to the final customer is also being outsourced to a third party. The basic considerations of Haidiri in this regard are: •

Pointing out sources of supply and negotiate with suppliers

•

Sourcing of raw material from local and foreign suppliers

•

Deciding terms and conditions with supplier

•

Coordinating activities and documentation with suppliers

•

Cost comparisons and quality assurance.

Haidiri makes the decision from where to outsource by inviting bids for tenders in the local newspapers. The tender works as a general offer to all the interested parties whether they are related to the provision of raw material or distribution vehicles. Sourcing process of the company includes the selection of supplier, design of supplier contracts, product design collaboration, procurement of material and services and evaluation of supplier performance in case of raw material procurement. Supplier Scoring and Assessment

Figure 28 (Supplier Scoring and Assessment) [Source: http://www.etq.com/supplierquality/]

When comparing suppliers, Haidiri does not only focus on the quoted price but also other dimensions that may affect the total cost of the supplier. The following factors other than quoted price are being considered: replenishment lead time, supply flexibility, supply quality, pricing terms, exchange rates, duties and supplier viability. For Haidiri the supplier scoring and assessment is based on the feature that the supplier performance, in terms of replenishment lead time and on time performance, distinguish them amongst their competitors. Soon after the tender notice for the procurement of raw materials is advertised, the suppliers are asked to send sample of the products. For example, for the manufacture of Pepsi, concentrate and sugar are demanded of high quality which is the forte of the company. These samples are tested in the total quality laboratories. If the samples match with the standard set then the sales department selects that particular supplier. Pepsi being an ISO-9001 certified company cannot sell low quality products, therefore it has strict standards set for the purchase of raw materials from suppliers.

4.17 Raw material Procurement For the manufacturing of Pepsi products, Haidiri procures raw materials like packaging materials, bottles, cans, sugar and concentrate etc. from both local and foreign suppliers. The materials used in the manufacture of beverages are primarily being procured from various parts of the country. Plastic bottles are mostly obtained from APCO plant, which is located right next to Haidiri’s factory. Cans are imported ready-made and printed from Dubai in two parts-the case and the lid. Sugar is purchased from several different suppliers chosen from a list already selected by PepsiCo International. The concentrate is obtained directly from PepsiCo International. The management usually advertises in the newspaper to invite tenders for the supply of these raw materials. The basic components of raw material are: concentrate, CO2, sugar and gas.

4.18 Negotiations with Suppliers Procurement Managers at Haidiri perform technical evaluation of the suppliers including the analysis of their historical financial record, lead time and infrastructure before selection. In some cases, after selection of the supplier, Haidiri enters into

negotiations to set the terms of the contracts. Haidiri’s supply contract with the supplier specifies parameters governing the buyer-supplier relationship. But in addition to this contract, further negotiations with the supplier are opted for establishing a significant impact on the behavior and performance of all stages in the supply chain. Haidiri enjoys a bargaining edge in the negotiation process and dictates the terms rather than to follow them.

4.19 Selection Criteria of Distributors Selection of distributors is a critical step, because the majority of supply to the retailers is handled by the distributors. Efficient and well-placed distributors are essential for ensuring product availability, which is the main target of the company. For this purpose, applicant distributors must have: 20-25 vehicles (depends upon area supplied), have 20,000 cases of empty bottles, and deposit Rs.1,000,000 as security. Distributors who meet these criteria are then considered as potentials and then selected after negotiations on cost and other factors. In case of Haidiri’s distributors the company allocates a fixed quota to its distributors and does not show flexibility of buying back. Revenue sharing contract exists between the distributor and Haidiri.

4.20 Product Categorization by Value and Criticality Pepsi’s strategic item is its drink formula. It is considered to be a base line for the company’s business all over the world. The critical item is the gas component that is CO2; the company must ensure the availability of this item with less comparative accumulated cost. Cans and bottles come into the category of general items, the company tries to ensure maximum efficiency while buying these items. The use, type and specifications of bottles differ with different products. General items have more specific use as compared to bulk items. Sugar may rightly be placed under the category of bulk items. Haidiri procures sugar for its use in the production process. Maximum efficiency has been ensured while buying sugar and its related products in bulk. Bulk items are used invariably in all products of Pepsi with slightly variations of proportion.

Figure 29 Product Categorization by value & Criticality

High

Low

Critical Item s Ensure availability Gas CO2 General Item s Ensure low cost Cans and bottles Low

4.21

Criticality

Strategic Item s Ensure long term relationship Drink Formula Bulk P urchase Item s Ensure low cost Sugar

Value/Cost

Pricing and

High 26

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Revenue Management Being a franchise of PepsiCo International, Haidiri beverages cannot vary the price of its drinks in the retail market in order to regulate revenue and profit; it has to follow the pricing set and determined by PepsiCo international. However, all the revenue management policy guide lines are provided from PepsiCo International. For an effective revenue management, pricing is an important lever to increase supply chain profit by better matching supply and demand. As per Pepsi’s policy, Haidiri uses differential pricing based on customer segment, time of use, and product or capacity availability. In order to increase supply chain profits and total margin earned from these assets, managers use all available levers, including price. This is a primary role of revenue management.

4.22 Revenue Management for Seasonal Demand Seasonal peaks of demand are common every year. In Pepsi the seasonal demand varies as it increases considerably in summer than in winters. Off-peak discounting can shift demand from peak to non-peak periods. This is exactly what Pepsi does as it reduces its prices on litre bottles and comes up with new saving schemes just to attract customers. Pepsi charges higher price during peak periods and a lower price during off-peak periods.

4.23 Pricing and Revenue Management for Multiple Customer Segments These are different segments which Pepsi has allocated and targets multiple customers from these segments such as children, teenagers and adults. The product range is available in tin, glass bottles, plastic liter bottles and fountain fresh. Tin is relatively expensive than glass bottles and caters to a different segment. To use revenue management successfully when serving multiple customer segments, Haidiri follows these tactics effectively by basing price on the values assigned by each segment. They also use different prices for each segment for example a Pepsi can costs Rs 30 and at the same time Pepsi bottle costs only Rs 12, so Pepsi uses different prices for each segment. To gain the edge Pepsi forecasts at the segment level as well to help keep Pepsi competitive in their pricing and revenue management

4.24 Pricing and Revenue management for Bulk and Spot Customers Haidiri’s has key accounts like Savor foods, KFC, Pizza Hut etc., and pricing is adjusted in order to facilitate these customers. They are offered discounted prices because they are potential long term customers and they always purchase in bulk. Not only that, they serve as an important means of promotion. By offering lower prices to such large scale customers, the company ultimately benefits. At the same time the distributors also reach out to the retailers who usually buy at the spot in small quantities.

4.25 Using In Practice Managers do gather accurate and complete data relating to products, offered prices, competition and most important customer behavior. For Pepsi it’s equally important to quantify the expected benefits from revenue management. Historical data and a good model of customer preferences are being used to estimate the benefits. Pepsi differentiates between the customers who truly need the supply chain asset during peak period and those who will benefit from moving their order to the off-peak period. This approach increases profits for the firm while also satisfying the customers creating a double impact. Revenue management tactics have brought in huge profits to the company.

Chapter 5

Ideal Features of a Supply Chain Management System

Chapter 5 Ideal Features of a Supply Chain Management System The reality of today’s global economy is such that manufacturing firms everywhere face stiff competition as a result of outsourcing to countries where cheaper labor is readily available. Because of this, new methods of manufacturing and delivery have been created, and out of this have come Supply Chain Management (SCM). To better appreciate this relatively new area of technology, one needs to understand the general supply chain model, the economic factors involved in the supply chain process, and how the software market has developed solutions to meet the challenges faced by today’s manufacturers and distributors. Fierce competition is not today’s manufacturers only concern. Rising fuel costs, an increase in the number of government regulations, a greater need for visibility (as products or components move cross country and across nations), maintaining customer satisfaction—all these issues are forcing organizations to look for faster, more efficient ways of producing and moving goods. SCM software is now available to accommodate the needs of manufacturers today.

5.1 The Need for Supply Chain Management Systems SCM is very complex, and because products move through multiple partners, it is quite difficult to achieve maximum profits, minimum costs, and to gain the needed competitive edge. SCM has many nodes that connect suppliers, manufacturers, and distributors together. The supply chain also brings manufacturers and distributors closer to the outsourced producers, creating a value chain, where each manufacturing process and each product is tracked from the manufacturer all the way to the final consumer. In order for this value chain to be created, throughout the supply chain as well as at each node, software has been developed to help companies turn out a profitable bottom line and increase market share in their respective industries. Using these software solutions, profits are maximized, costs are kept to a minimum, and scheduling and timing are kept in check.

In addition, collaboration between partners can be daunting, especially since each partner wants to make a profit. Because of this and other factors (such as rising petrol prices and the steady increase of goods being manufactured in China and Eastern European countries), international collaboration and quick inventory turnover are essential. SCM software can equip a facility with the capacity to receive the increased volume of product shipments coming from lower-cost countries.

5.2 Software Solutions for Today’s Manufacturers and Distributors Because of the growing complexity of today’s supply chains, including geographic and international issues, financial constraints, and the sheer number of players that can be involved, SCM software has been developed so that manufacturers and distributors can work without missing a beat. People typically involved in supply chain activities include manufacturers, distributors, logistics professionals, procurement specialists, vendor managers, commodity buyers, planners, and even retailers. All of these players need assistance in solving complex business issues that arise in the supply chain. SCM software addresses the needs of both manufacturers and distributors. The software can be customized to meet manufacturers’ needs by sourcing and obtaining the materials required to produce semi-finished or finished goods, and to aid distributors in moving products quickly and efficiently, allowing maximum visibility across the logistics network. Supply chain software includes many types of software solutions that may be sold as stand-alone modules. Yet when combined together, these solutions give supply chain professionals the visibility they need into their operations. In terms of lean manufacturing, a hybrid of both manufacturing and distribution modules is used, giving way to maximum efficiency and low or zero wasted materials in the manufacturing environment.

5.3 Core Components of SCM Software In a typical SCM solution, software modules included are a warehouse management system (WMS), transportation management system (TMS), supplier relationship

management (SRM), international trade logistics (ITL), procurement, demand management (DM), supply chain analytics, order management, and service parts planning. For manufacturing companies, SCM also include the modules supporting manufacturing operations. 1. Warehouse Management Systems (WMS) At the heart of an SCM solution lies both the WMS and the TMS applications. The WMS solution deals with the inventory that is to be moved throughout the supply chain. For inventory movement within the warehouse to be efficient, the process must be optimized through visibility of the products. Visibility is usually enabled by Radio Frequency Identification (RFID) technology. SCM can manage warehouse activities, including: •

Inbound Processing and Receipt Confirmation – Receive and process externally procured goods into your warehouse with a single radio-frequency scan.

•

Outbound Processing – Use RFID technology to manage all the steps of the goods issue, including distribution and proof-of-delivery activities.

•

Cross Docking – Direct inbound goods from receipt to issue without interim storage. Minimize duplicate goods movements, optimize the flow of goods, and shorten routes within the warehouse.

•

Warehousing and Storage Management – Optimize internal movements and storage of goods within a warehouse.

•

Physical Inventory – Plan and execute physical inventory or cycle counts.

2. Transportation Management System (TMS) The TMS software is one of the key components to the supply chain. This software manages the scheduling of all transport modes used to move products from one location to another, in addition to finding the best routes to take and determining which products are best transported by what type of transportation (that is, truck, rail, sea, or plane). TMS software also allows individuals within the transportation network, such as drivers or managers, to log in to a transportation portal to communicate directly and make updates in real time.

SCM can manage key transportation processes, including: •

Transportation Planning – Optimize shipments, assign carriers to shipments, and tender shipments to assigned carriers.

•

Transportation Execution – Select carriers, calculate freight costs, settle shipment costs, and print documents. Use denied-party and embargo lists when shipping internationally.

•

Freight Costing – Calculate and settle freight costs based on actual shipments and current rates, and use this information to verify invoices.

3. International Trade Logistics The ITL module within the SCM suite handles the details for international trade. Collaboration between countries, compliance issues, tariffs and taxes, event management, shipment tracking, and import and export management are all dealt with by giving many people across the supply chain access and visibility into the issues that can occur at any node within the supply chain, and not only into the products themselves in the international context. 4. Supplier Relationship Management (SRM) SRM software enables suppliers and delivery site individuals to access supplier portals for the following two reasons: i. To facilitate communication among these parties and to update them on any problems the supplier may be experiencing at its end, and ii. To allow managers to use scorecards to rate suppliers as good, average, or poor. For example, if a supplier is not complying with standards or is not respecting delivery times or if the supplier’s goods are simply not available, the supplier will be given a poor rating. If the supplier receives too many poor ratings or if the problems continue to occur, the supplier can be justifiably replaced by a new one. 5. Supply Chain Analytics Supply chain analytics is a tool that allows managers and others involved in decision-making processes the ability to create what-if scenarios, enabling workaround scenarios to be put into place before incidents occur. This also enables production and supply chain planning to be optimized.

SCM supports supply chain visibility design and analytics with features and functions that enable supply chain design and analytics processes, including: •

Strategic Supply Chain Design – With visibility across the entire supply chain network, planners and key decision makers can perform strategic and tactical business planning. They can test scenarios to determine how the supply chain network can address changes in the market, the business, or customer demand.

•

Supply Chain Analytics – SCM enables to define, select, and monitor KPIs1 to get an integrated, comprehensive view of performance across the supply chain. Companies can also use predefined KPIs based on the supply chain operations reference (SCOR) model to monitor sourcing, planning, production, distribution, and returns processes.

6. Demand Management DM software gives both manufacturers and distributors the ability to forecast and manage the demand for particular products sold within their respective markets. DM software takes historical sales and warehouse data, and provides a guideline to what should be procured and at what time, taking into account seasonal variability. This helps in the planning of what is needed to be produced and how much of each material is to be procured. DM software can also help manufacturers obtain particular components from different sources to produce complex products within appropriate timelines. The software may also take data from the human resources (HR) application to schedule laborers according to production demand. 7. Order Management Eliminate the soft costs, delays and errors associated with manually generating, sending, receiving, and acknowledging orders. SCM automates this entire process, cutting administration costs and saving hundreds of thousands of dollars per year in overheads, while making supply chain more efficient. Supply Chain Management Hub enables the supply chain to extend way beyond enterprise. Much of the inefficiency and cost that carry is a direct result of poor, late, or non-existent 1

Key Performance Indicators (KPI) are financial and non-financial measures or metrics used to help an organization define and evaluate how successful it is, typically in terms of making progress towards its long-term organizational goals. KPIs can be specified by answering the question, "What is really important to different stakeholders?"

communication with suppliers. SCM system simply take the information organization choose to provide and deliver it to the people, in real-time and in the format they require. SCM can manage order fulfillment activities, including: •

Sales Order Processing – Fulfill a contract or purchase order with a specific product configuration and quantity – or a given service at a specific time.

•

Billing – Handle the entire billing process, from the creation and cancellation of invoices through the transfer of billing information to the accounting department.

8. Procurement SCM supports end-to-end procurement, including processes for: •

Strategic Sourcing – Identify and evaluate vendors based on historical performance and other data. Create long-term sourcing plans that align with financial and marketing strategies.

•

Purchase Order Processing – Convert demand, such as purchase requisitions and e-shopping carts, into purchase orders or delivery schedules for a scheduling agreement.

•

Invoicing – Receive, enter, and check vendor invoices for correctness in terms of content, price, and computation.

9. Manufacturing SCM supports all production processes, including engineer-to-order, configure-toorder, make-to-order, and make-to-stock manufacturing. The solution enables both: •

Production Planning and Detailed Scheduling – Optimize schedules for machine, labor, and overall capacity utilization, factoring in customer delivery dates, material availability, and real-time manufacturing conditions.

•

Manufacturing Operations – Capture production information from the shop floor to support production control and costing processes.

10. Service Parts Planning SCM can also handle service parts planning activities, including:

•

Parts Demand Planning – Improve the accuracy of forecasts through better modeling of demand quantities, events, and their respective deviations. Companies can select sophisticated forecast models and optimize model parameters to improve forecasting for slow-moving parts or for parts with irregular demand patterns. Through aggregated forecast-parameter profile maintenance, can make data maintenance more efficient.

•

Parts Inventory Planning – Reduce inventory levels and achieve retail service levels by providing more precise demand modeling. Companies can distribute inventory optimally within the multi-echelon supply chain to ensure high service levels while keeping inventory levels at a minimum.

•

Parts Supply Planning – Reduce inventory in the supply chain by improving supplier alignment, increasing automation, and developing accurate supply plans. Companies can also reduce operational cost through efficient purchasing practices.

•

Parts Distribution Planning – Set up stock transfers for parts within a service parts network to reduce stock-out situations and operational costs.

•

Parts monitoring – Work with suppliers and customers to exchange information and handle alerts collaboratively.

5.4 Other Supported Features of Supply Chain Management Systems Supply Chain management helps to cost-effectively collaborate with suppliers and customers to dramatically reduce inventory levels, increase inventory overturn, and strip out administrative costs. Supply Chain systems makes information available to suppliers in real-time, enabling the entire supply chain to work faster, smarter, and more cost-effectively. 1. Planning and Forecasting A major factor behind missed product deadlines is that suppliers are not given enough warning about changes to production schedules. Using Supply Chain Management Hub, suppliers will know about production plans. Fewer mistakes and last-minute changes are made and goods are delivered on time to the correct location. 2. Visibility

Current inventory levels tend to bloat as a result of poor visibility into demand flowing through supply chain. By making upcoming demand transparent to suppliers, help to lower all of costs and run a far more efficient supply chain. Once

suppliers see

inventory levels and short term and long term requirements for their products, they can better run their own operations, buying smarter, holding less inventory, doing less last-minute and expensive transportation, and cutting their production setups. 3. Financial Supply Chain Management (FSCM) Financial Supply Chain Management set of applications provides a complete, integrated solution for managing electronic customer billing, receivables, collections, and customer credit risk. FSCM helps to more effectively control company's accounts receivable processes and ensure cash flows through online billing, more streamlined handling of billing disputes, and collections. Complete integration with core ERP applications ensures that company receivables and collections professionals have the most up-to-date data. So they can resolve issues quickly – resulting in accelerated cash flow and lower operating expenses. FSCM includes the following applications: •

Credit Management ○ Employs sophisticated tools to analyze customer credit worthiness and establish policy ○ Helps to avoid bad debt losses by proactively managing customer credit risk exposure

•

Electronic Invoicing and Payments ○ Enables customer access to invoices, account status, and payment information over the Internet ○ Integrates seamlessly with your existing customer or supplier facing portals

•

Dispute Management ○ Resolves accounts receivable disputes faster and more systematically ○ Reduces days sales outstanding (DSO) and improve cash flows

•

Collections Management ○ Enables the more effective management of past due accounts ○ Ensures faster collection of delinquent payments though prioritized collections efforts

5.5 Supply Chain Planning and Collaboration SCM includes features and functions to support collaborative supply chain planning processes, including strategic, tactical, and operational planning. 5.5.1 Strategic, Tactical, and Operational Planning SCM can optimize a full range of planning activities, including: •

Demand Planning and Forecasting – Forecast and plan anticipated demand for products or product characteristics. Use state-of-the-art forecasting algorithms for product life-cycle planning and trade promotion planning.

•

Safety Stock Planning – Assign optimal safety stock and target stock levels in all inventories in the supply network. Meet desired customer service levels while maintaining a minimum amount of safety stock.

•

Supply Network Planning – Integrate purchasing, manufacturing, distribution, and transportation plans into an overall supply picture – so that users can simulate and implement comprehensive tactical planning and sourcing decisions based on a single, globally consistent model. This can involve heuristics and capacity planning, optimization, and multilevel supply and demand matching.

•

Distribution Planning – Determine the best short-term strategy to allocate available supply to meet demand and to replenish stocking locations. To achieve this, planners can determine which demands can be fulfilled by existing supply elements.

•

Supply Network Collaboration – Work with partners across supply network. Using collaboration features that improve visibility into supply and demand, company’s partners can reduce inventory buffers, increase the velocity of raw materials and finished goods through the pipeline, improve customer service, and increase revenues.

5.6 Business Benefits

SCM can help to transform a traditional linear supply chain into an adaptive network with the following benefits: •

Faster Response to Changes in Supply and Demand – With increased visibility into the supply chain and adaptive supply chain networks, you can be more responsive. Companies can sense and respond quickly to changes and quickly capitalize on new opportunities.

•

Increased Customer Satisfaction – By offering a common information framework that supports communication and collaboration, SCM enables to better adapt to and meet customer demands.

•

Compliance with Regulatory Requirements – companies can track and monitor compliance in areas such as environment, health, and safety.

•

Improved Cash Flow – Information transparency and real-time business intelligence can lead to shorter cash-to-cash cycle times. Reduced inventory levels and increased inventory turns across the network can lower overall costs.

•

Higher Margins – SCM can lower operational expenses with timelier planning for procurement, manufacturing, and transportation. Better order, product, and execution tracking can lead to improvements in performance and quality – and lower costs.

•

Greater Synchronization with Business Priorities – Tight connections with trading partners keep supply chain aligned with current business strategies and priorities, improving your organization's overall performance and achievement of goals.

5.7 Enabling Technologies Many technologies exist to share and analyze information in a supply chain system. Managers must decide which technologies to use and how to integrate these technologies into their companies and their partners’ companies. The consequences of these decisions are becoming more and more important as the capabilities of these technologies grow. Some of these technologies include the following: 1. Electronic Data Interchange (EDI) allows companies to place instantaneous

paperless purchase orders with suppliers. EDI is not only efficient, it also

decreases the time needed to get products to customers because transactions are faster and more accurate then when they are paper based. Although EDI is a bit outdated and has limited capabilities, it still offers efficiency and responsiveness gains for some firms. 2. The Internet has critical advantages over EDI with respect to information

sharing. The internet conveys much more information and therefore offers much more visibility than EDI. Better visibility improves decisions across the supply chain. Internet communication among stages in the supply chain is also easier because a standard infrastructure (World Wide Web) already exists. Thanks to the internet, e-commerce has become a major force in the supply chain. 3. Enterprise Resource Planning (ERP) systems provide the transactional tracking

and global visibility of information from within a company and across its supply chain. This real-time information helps a supply chain to improve the quality of its operational decisions. ERP systems keep track of the information, whereas the internet provides one method with which to view this information. 4. Radio Frequency Identification (RFID) consists or an active or passive radio

frequency (RF) tag applied to the item being tracked and an RF reader/emitter. A passive tag draws energy from the reader, whereas an active tag has its own battery and draws power from there. Wal-Mart has mandated the use of RFID technology by its top 100 suppliers at the case level. RFID has many potential uses. It can be used in manufacturing to check availability of the entire bill of materials. The technology can make the receiving of a truck much faster and cheaper. Full implementation of RFID could eliminate the need for manual counting and barcode scanning at the receiving dock. It can also be used to get an exact count of incoming items and items in storage. RFID technology, however, has yet to reach 100 percent accuracy, and its cost per unit is still high enough to make global acceptance difficult, even at the case level.

5.8 E-Business and Contribution Network 5.8.1 Impact of E-Business on Customer Services

1. Customer service is the most important function of e-business. Good customer service means responsiveness. It means one can understand, anticipate and respond quickly to the needs and demands of customers. 2. Transparent Availability Customers or clients should always be able to contact with businesses immediately, and customer easily accessible to them. 3. Visibility

Business contact information should be available anywhere to customers. It is vital to have easily available e-mail links, toll-free telephone numbers and links to feedback forms. 4. E-mail Lists

E-mail lists are powerful tools in e-business customer service. Business can maintain their visibility with their clients or customers while providing important information to them. These lists can give on-going or routine information as well as news and positive advancements or changes. Response and feedback should be encouraged by providing links back to customers and full contact information. 5. Auto Responders It is smart to provide as much information as possible to customers by using auto responders. When customer sends an email to auto responder , it can send back any appropriate information automatically. 6. Interactivity

By increasing the ease of interactivity with customer businesses increase the likelihood of an exchange of information. This can be achieved through form, surveys and incentives. 7. Customer Experiences An e-business can greatly increase customer experience in term of access, customization and convinces. 8. Product Variety E-business offers a large variety of products to customers. 9. Efficient Fund Transfer An e-business can enhance revenues by speeding up collection.

5.9 Impact of E-Business on Cost E-business affects inventory, facilities, and transportation and information costs. Responsiveness Efficiency Transportation Information Inventory Facilities Competitive S.C. Strategy Strategy

1.

Inventory An e-business can lower inventory level and inventory cost by improving supply chain coordination and creating better match between supply and demand. Benefits are Smoothing Supply-Demand uncertainties and Economies of scale (Start up costs, Transport fixed costs). Cost includes Capital cost, Risk and Operational costs. Types of inventory : By uncertainty type:

•

Cycle Inventory: designed to meet economies of scale (EOS)

•

Safety Inventory: designed to meet uncertainties (marginal analysis) By supply chain stage: •

Raw materials Process inventory

•

Ready product inventory

2. Transportation: Transportation Modes (air, truck, sea, rail) In House or Outsource. Transportation speed makes a positive contribution to responsiveness and can be increased at a cost. 3. Facilities – Capacity: Two basic types of facilities costs must be included in the analysis are cost related to Location of factories, warehouses, retail outlets and cost related to operation. Increasing the number of warehousing facilities in a logistics network generally improves customer service, because additional stocking locations reduce average delivery times to customers. However, more warehouses increase warehousing and inventory costs. Warehousing costs increase because there are more overhead and fixed costs to absorb. Inventory costs increase because a greater number of warehouses means more safety stock inventory must held system-wide to provide a specified level of customer service. In contrast, transportation costs decrease as the number of facilities is increased over some range. Rather than shipping smaller quantities direct from points of supply (eg. Plants) to customers, warehouses serve as product mixing centres that allow larger, consolidated shipments between supply points and

warehouses. This transportation cost advantage becomes diminished, however, if too many warehouses are present because the shipment sizes between supply points and warehouses decrease to the point that there is little shipment consolidation advantage over direct shipments to customers. 4. Information ➢

Accurate forecasting

➢

Coordination between stages of S.C.

➢

Fast cycles

➢

Inventory reduction

➢

Lost sales reduction

➢

Markdowns reduction

5.10 The Role of IT in Forecasting There is a natural role of IT in forecasting, given the large amount of data involved. The frequency with which forecasting is performed, and the importance of getting the highest quality results possible. The forecasting module within a supply chain IT system often called the demand planning module is a core supply chain software product. Commercial demand planning modules come with a variety of forecasting algorithm which can be quite advanced and are sometimes proprietary. These methodologies often give a more accurate forecast then what can be produced through the use of a general package such as excel. Most demand planning application make it easy to test the various forecasting algorithms against historical data to determine the one that provides the best fit to the observed demand pattern. The availability of a variety of forecasting options is important because different forecasting algorithms provide different levels of quality depending on the actual demand patterns. The IT system can be used to best determine forecasting methods not just for the firm overall, but also by product categories and markets. Good demand planning modules link not only to customer orders but often directly to customer sales information as well, incorporating the most current data into the demand forecast. Much of the progress in areas such as collaborative planning is due to

IT innovations that allow the exchange and incorporation of forecasts between enterprises. Good demand planning modules contain tools to perform what-if analysis regarding the impact of potential changes in prices on demand. These tools help analyze the impact of promotions on demand and can be used to determine the extent and timing of promotions. Keep in mind that none of these tools is foolproof. Forecasts are virtually always wrong. A good IT system should help track the historical forecast errors so they can be incorporated into future decisions. A well structured forecast, along with a measure of error, can significantly improve decision making. Forecasting modules are available from all the major supply chain software companies, including the ERP firms such as SAP and Oracle. Finally, some of the DRM focused firms have elements of forecasting in their products, given their focus on customer facing processes. Forecasting and IT have a long history. The classic supply chain IT package has a forecasting module feeding forecasts to a planning module. Forecasting is core part of IT in the supply chain.

5.11 Risk Management in Forecasting The risk associated with forecast error must be considered when planning for the future. Errors in forecasting can cause significant misallocation of resources in inventory, facilities, transportation, sourcing, pricing, and even in information management. Forecast errors during network design may cause too many, too few, or the wrong type of facilities to be built. At the planning level, plans are determined from forecasts so the actual inventory, production, transportation, sourcing and pricing plans that a company produces and follows depend on accurate forecasting. Even on an operational level, forecasting plays a role I the actual day to day activities that are executed within a company. Long lead times require forecasts to be made further in advance. Seasonality also tends to increase forecast error. Forecast error increase when product life cycles are short, because there are few historical data to build on when producing a forecast. Firms with a few customers often experience very lumpy demand that is harder to forecast than

demand from many small customers, which tends to be smoother. Forecast quality suffers when it is based on orders placed by intermediaries in a supply chain rather than on end customer demand. Improved responsiveness and pooling often come at a cost. Increase speed may achieve capacity investment. Whereas pooling tends to increase transportation cost. To achieve the right balance between risk mitigation and cost, it is important to tailor the mitigation strategies. For instances, when dealing with a commodity for which shortfalls can easily be made up or by spot market purchases, spending large amounts to increase the responsiveness of the supply chain is not warranted.

5.12 Forecasting in Practice 5.12.1 Collaborate in Building Forecasts Collaboration with your supply chain partners can often create a much more accurate forecast. It takes an investment of time and effort to build the relationships with your partners to begin sharing information and creating collaborative forecasts. However, the supply chain benefits of collaboration are often on order to magnitude greater than the cost. The reality today, however, is that most forecasts do not even account for all the information available across the different functions of a firm. Progress needs to be made before all supply chain information is accounted for and utilized. 5.12.2 Share Only the Data that Truly Provides Value The value of data depends on where one sits in the supply chain. For instances, a retailer finds point of sales data to be quite valuable in measuring the performance of its store. However, a manufacturer selling to a distributor who in turn sells to retailers does not need all the point of sale detail. The manufacturer finds aggregate demand data to be quite valuable, with marginally is truly required decreases investment in IT and improves the chances of successful collaboration. 5.12.3 Be Sure to Distinguish Between Demand and Sales Often companies make the mistake of looking at historical sales and assuming that this is what the historical demand was to get true demand, adjustment need to be made for unmet demand due to stock outs competitor actions, pricing and promotions.

5.13 The Role of IT in Aggregate Planing Aggregate planing is the supply chain area in which information technology is mostly used. The aggregate production planning (APP) problem is about determining the optimum production, work force, and inventory levels for each period of the planning horizon for a given set of production resources and constraints. Such planning usually involves one product or a family of similar products with small differences so that considering the problem from an aggregated viewpoint is justified. The product demand data are assumed to be known with certainty; however, provisions for forecast error may be incorporated. The goal is to meet the forecasted product demand in a costeffective manner. Typical costs related to APP include payroll, hiring/layoffs, overtime/under time, and inventory shortage/backordering. Numerous APP models with varying degrees of sophistication have been introduced in the last four decades. Aggregate planning is a process by which a company determines levels of capacity, production, subcontracting, inventory, stock outs, and pricing over a specified time horizon. Its goal is to maximize profit. In aggregate planning decisions made at a product family level. For planning time frame of 3 to 18 months is required. 5.13.1 Role of Aggregate Planning in SCM It specifies operational parameters over the time horizon: ○ Production rate ○ Workforce ○ Overtime ○ Machine capacity level ○ Subcontracting ○ Backlog ○ Inventory on hand All supply chain stages should work together on a plan that will optimize supply chain performance. Information Needed for an Aggregate Plan are Demand forecast in each period ,Production costs ,labor costs, regular time and overtime. Sub contracting costs, cost of changing capacity: hiring or layoff and cost of adding or reducing machine

capacity, Labor/machine hours required per unit ,Inventory holding cost, Stock out or backlog cost 5.13.2 Aggregate Planning in Planning in Practice •

Think beyond the enterprise to the entire supply chain.

•

Make plans flexible because forecasts are always wrong

•

Rerun the aggregate plan as new information emerges

•

Use aggregate planning as capacity utilization increases

5.14 The Role of IT in Inventory Management Most of the researches in supply chain areas are concerned about optimizing the supply chain in terms of its efficiency and competence in the product market, but only limited studies are done considering the inventory management in supply chains. Effective inventory management in a supply chain can play a vital role in cutting inventory holding costs across the different stages of the supply chain. The prime objective for all supply chains is to provide clients with what they want, when they want it. Inventory management plays a central role in every supply chain’s need to satisfy its clients. Inventory management help the companies develop an effective approach to inventory. it

analyze the impact of internal and external factors to integrate inventory with

purchasing, manufacturing, distribution, marketing and sales to create inventory policies that make sense. It help to analyses the • Client needs and their influence on in-stock/fill rates, lead time and accuracy • Costs incurred from purchase transaction expenses, manufacturing setup/changeover expenses, and more • Operations changes driven by promotions or recalls and SKU proliferation • Technology and its ability to provide trend, profiling and seasonality-based forecasting, trading partner visibility and planning collaboration • Corporate

goals

whether

revenue,

unit

sales,

increases

inventory

management help to understand inventory and lower inventory cost.

5.15 Role of IT in Transportation

Transportation is one of the major items of cost in a supply chain. As a firm's ability to serve the customers depends on how efficiently and quickly the orders are delivered, transportation management becomes one of the important operations in a supply chain. There are two important functions performed by transportation: product movement and product storage. While product movement is the primary function of transportation, temporary product storage becomes its secondary function. There are five key participants in transportation environment: the shipper, the carrier, the receiver or consignee, the government, and the public. The complexity of transportation decisions demands to use of IT systems IT software can assist in: ➢ Identification of optimal routes by minimizing costs subject to delivery constraints ➢ Optimal fleet utilization ➢ GPS applications

5.16 Risk management in transportation The goal of a transportation risk management program is to reduce the risks of transporting hazardous materials. Qualitative or quantitative transportation risk analysis (TRA) methods are important elements of a transportation risk management program, allowing company management to identify major risk contributors and the effectiveness of various risk reduction options. A wide variety of TRA methods, ranging from simple to complex, are used in the industries. There are three main types of risk for transporting a shipment: ➢ The risk that shipment is late. ➢ The risk that shipment is never reached its destination because intermediate nodes are or links are disrupted by external factors. ➢ The risk of hazardous material. In each case it is important to identify the sources of risk and their consequences and plan suitable mitigation strategies. Risk mitigation strategies: ➢ Decrease the probability of disruptions

➢ Alternative routings ➢ In case of hazardous materials the use of modified containers, low-risk transportation models, modification of physical and chemical properties can prove to be effective

5.17 Making Transportation Decisions in Practice ➢ Align transportation strategy with competitive strategy ➢ Consider both in-house and outsourced transportation ➢ Design a transportation network that can handle ➢ e-commerce ➢ Use technology to improve transportation performance ➢ Design flexibility into the transportation network

5. 18 The Future of IT in Supply Chain Information systems that focus on micro processes are much more successful. For firm targeting macro process functionality the ability to integrate across macro processes. This conclusion is an important implication of companies those use software. Characteristics of software improve the performance of its users. Thus a user of supply chain software should first identify areas within the tree macro processes where improvement will provide the maximum leverage. Software and IT decisions should then support the goal of improving performance along these processes. There are two potential ways for a company to enter in a market. The first is trough the superior functionality, whether it is specific functionality needed by a particular industry or an application with vastly improved ease of use. Provide an integrated product that increases the linkage between the macro processes. It is difficult for start up to build an integrated product across CRM, ISCM and SRM. However a large software company with tremendous resources and a history of pulling desperate products into an integrated package could take this path.

5. 19 Risk Management in IT

There are several risks associated with the use of IT in the supply chain; the larger the change in the IT system the greater is the risk of a negative impact on operations. The firm cannot function properly if IT suffers from a major failure. The major areas of risk in IT can be divided into two broad categories: The fist is the risk involved with installing new IT systems. During the process of getting new IT systems running a firm is forced to transition from the old processes it used in its operations to the new process in its IT system. Here problem can be occurring in both business process and in technical issues. on the business process side new IT system requires employees to operate according to new processes. There may be difficult to learn and employees who prefer the old ways of doing business may feel difficulty. There are some technical issues. The amount of integration that needs to take place between desperate systems is often overwhelming. When firm switch to new system which is not properly integrated than problems occur. Even when the employees are bought into the new process and all the technical hurdles are overcome, it is often a delicate balance to actually make the transaction over to the new system. A firm still faces risks once its IT systems are operating. The more a firm relies in IT to make decision and execute processes the higher is the risk that any sort of IT problem, ranging from software glitches to power outages to virus can completely shutdown firms operations. Some systems only allow a process to be executed in one way. Then the firm settles in to a pattern of doing thing in one way obviously there are great efficiency benefits of this but firm also run this risk that the process is not of the performance level of its competitors and that its systems make it difficult to change to newer, more effective processes.

5. 20 When Implementing IT Systems •

Install IT system in an incremental fashion rather than in a big bang approach. This allow the firm to limit the damage and easy to pinpoint problem areas during installation.

•

Firm can implement duplicate system to ensure new system work well. The firm can keep its old system running at the same timer the new one is running. If new system creates problems than old system can be utilized as it still exists.

•

Implement only the level of complexity that one needs.beacure complexities increase the risks.

One the operational side mitigation strategies include data backup systems, systems running in parallel in case when one should suffer a problem and range of security software products. Picking systems that can flexibility of change if need b can be important.

5.21 The role of IT in Sourcing Sourcing related IT has had the most ups and down of any supply chain software sector. The sourcing software world created many electronic marketplaces in the late 1990s that were expected to transform the purchase of goods and services. There are a wide variety of areas in which IT can and is used in sourcing today. In fact there is a greater diversity if IT sourcing products than in most supply chain areas.

5.22 Some of the Major IT Product Areas Within Sourcing 5.22.1 Design Collaboration This software improves the design of product trough collaboration between manufacturer and the suppliers. The software facilitates the joint selection of components that have positive supply chain characteristics such as ease of manufacturability activities include the sharing of engineering change order between a manufacturer and its suppliers. This this eliminates the costly delays that occur when several suppliers are designing components for the manufacturers’ product concurrently. 5.22.2 Source Sourcing software assists in the qualification of suppliers and helps in supplier selection. Contract management and supplier evaluation. An important objective is to analyze the amount that an firm spend with each supplier. Supplier are evaluated along

several criteria include lead time, reliability, quality and price. This thing improves supplier performance and help in selection of suppliers. Contact management is also an important part of sourcing. 5.22.3 Negotiate Negotiation with supplier contains many steps, starting with request for quote. The negotiation process may also include the design and execution of auctions. The goal of this process is to negotiate an effective contract that specifies price and delivery parameters for a supplier in a way that best match the enterprise needs. Successful software automates the RFO process and the execution of auctions. 5.22.4 Buy Buy software executes the actual procurement of material from suppliers. This includes the creation, management and approval of purchase order. Successful software in this area automates the procurement process and helps decrease processing cost and time. 5.22.5 Supply Collaboration Once an agreement for supply is established between the enterprise and a supplier supply chain performance can be improved by collaborating on forecasts, production plans, and inventory levels. The goal of collaboration is to ensure a common plan across the supply chain. Good software in this area should be able to facilitate collaborative forecasting and planning in a supply chain. The most significant problem to success of sourcing software is that employees often just do not want to use the software. As sourcing software often limits what can be purchased, many people bristle at the loss of freedom to purchase what they feel are the best item for their company. In many cases people just go around the system and buy the products they want. Another difficulty arises when successful use of the IT systems requires collaboration among different enterprises. Difficult to convince firms of the benefits of using the system and often each firm is suspicious of the others.

5.23 Risk Management in Sourcing Sourcing risks in an inability to meet demand on time, an increase in procurement costs or the loss of intellectual property. It is important to develop mitigation strategy. An inability to meet demand on time arises because of disruption or delay from the supply

source. The risk of supply disruption may be serious, especially with far sources. Disruption risk can be minimized by developing multiple sources. Developing multiple sources is very expensive for products with low demand. Delay from supply source can be mitigated by charring inventory or developing a backup source that is more responsive. Caring inventory is best for low values products that do not become obsolete quickly. The risk of higher procurement costs can be significant when industry wide demand for the product exceeds available supply, exchange rates are unfavorable or there is a single supply source. Exchange rate risk can be minimized by developing a global supply network that is flexible enough to be reconfigured based in exchange rate fluctuations. The risk of holdup because of a single source can be countered by developing alternative sources or bringing part of the supply capability in house. Intellectual property risk can be mitigated by keeping products in house. Even when product is outsourced, firm can maintain ownership of part of the equipment if it is viewed as having significant intellectual property value.

5.24 Making Sourcing decision in practice: 5.24.1 Use Multifunctional Teams Effective strategies for sourcing result from multifunctional collaboration with in firms. A sourcing strategy from the purchasing group is likely o be relatively narrow and focus on purchase price. A strategy develops with the collaboration of purchasing, manufacturing, engineering and planning is much more likely to identify the correct drivers of total cost. The collaboration must be continued beyond strategy formulated to the procurement phase, because that is where manufacturing and engineering are most likely to realize the full benefits of good sourcing strategy. 5.24.2 Ensure Appropriate Coordination Across Regions and Business Units Coordination of purchasing across all regions and business until allows a firm to maximize economies of scale in purchasing and also to reduce transaction costs. Other

opportunities from improved sourcing such as better supply chain coordination and design collaboration however may require strong involvement at the business unit level to be really effective. Mandating global coordination across all business units may complicate these efforts, Most of the value is extracted from better design collaboration and coordinated supply chain forecasting and fulfillment are better served with somewhat more decentralized sourcing. 5.24.3 Always Evaluate the Total Cost of Ownership An effective sourcing strategy should not make price reduction its sole objective. All factors that influence the total cost of ownership should be identified and used in selecting suppliers. Supplier’s performance along all relevant dimensions should be measured, and its impact on total cost should be quantified. Focusing on the total cost of ownership also allows a buyer to better identify opportunities for better collaboration in design planning and fulfillment.

5.24.4 Build Long Term Relationships with Key Suppliers A basic thing of good sourcing is that a buyer and a supplier working together can generate more opportunities for saving than the two parties working separately. Solid relationship is likely to result only when two parties have long term relationship and degree of trust. A long term relation encourage suppliers to expand greater effort on issues that are important to a particular buyers this include investment in buyer specific technology and design collaboration.

These capabilities are very important when

sourcing direct materials.

5.25 The Role of IT in Pricing and Revenue Management The area of impact for IT within PRM is he pricing of retail goods in the consumer package good category. The grocery store have utilized this technology t price their products at the retail level. The pricing problem tackle involves both the regular as well as promotional pricing of products. PRM systems have also impact on fashion goods. Here the challenge revolves around how to optimally mark down the price of goods as the styles and seasons change. The goal is to mark down the price enough to sell most of the product but without marking it down so much that profit is thrown away.

The major pitfall in the pricing and revenue management area of IT revolve around linking PRM decisions with other areas and systems of the company.

Pricing is

generally determined within a relatively well defined area of a company, making it easy to setup pricing software. This ease of installation can cause problems if there is no integration with inventory, distribution, and production system. A common problem is a software recommendation of a price reduction, which in turn brings on a surge in demand. This lead o dissatisfied customers if there is insufficient inventory because the pricing systems did not communicate with the inventory management system. This lack of coordination can be quite harmful and greatly dilute the benefits of PRM.

5.26 Using Pricing and Revenue Management in Practice 5.26.1 Evaluate Your Market Carefully The first step in revenue management is to identify the customer segments being served and their needs. The goal is to understand what the customer is buying. Identified market needs. It is important to gather accurate and complete data relating to product offered, prices, competition and most important, customer behavior. Information about customer behavior is a valuable asset. A proper understanding of customer preferences and a qualification of the impact of various tactics on consumer behavior are at the core of successful revenue management.

5.26.2 Quantify the Benefits of Revenue Management Historical data and a good model of customer preferences should be used to estimate the benefits through a simulation. The outcome of this step should be explicit revenue targets that are to be achieved as a result of revenue management. The revenue target should be such that all people involved believe in them. The revenue management effort should then be compared to be expected benefit. 5.26.3 Implement a Forecasting Process The foundation of revenue management system is the forecasting function. Forecasting involves estimated demand and also attributing an expected error to the forecast itself. Both the estimated value and the expected error are important input into any revenue management model. It is very difficult to forecast at a micro level, where all behavior is

essentially idiosyncratic. So it is ensure that revenue management tactics are planned over an aggregate enough level that effective forecasting is possible. Finally as new information becomes available reforecasting to see if the revenue management tactics currently in place are still appropriate. The frequency of forecasting will depend on the amount of market activity. Ideally the forecast and the revenue management decision should be evaluated after every transaction. 5. 26.4 Apply Optimization to Obtain the Revenue Management Decision The goal of optimization is to use forecasts of customer behavior to identify a revenue management tactic that will be most effective. 5.26.5 Involve Both Sales and Operations The sales people must understand the revenue management tactic in place so that they can align their sales pitch accordingly. The sales force must differentiate between those customers who truly need the supply chain asset during the peak period and those that will benefit from moving their order to the off peak period. This approach will increase profit for the firm while also satisfying customers. Operations must understand the potential outcomes taking place. 5.26.6 Understand and Inform the Customer Customers may have negative perception about revenue management tactics if they are simply presented as a mechanism for extracting maximum revenue. Thus it is important for firms to structure their revenue management program in a way that revenue increases while improving services along some dimensions that is important to customer that pay the highest price. 5.26.7 Integrate Supply Planning with Revenue Management Integrate supply panning and revenue management can create significant value. Combine revenue management with decisions on the supply side. After applying revenue management a manufacturer finds that the production of a short lead time facility provides the majority of its profit, it should look into adding more short lead time capacity. Understanding and acting on the interactions among supply, demand, and pricing can bring about powerful results.

5.27 The Final Word SCM software has been designed to meet the needs of firms with global distribution, logistics, and manufacturing needs. Lean manufacturing and visibility in the supply chain are crucial elements for both distributors and manufacturing executives. Moving products among multiple locations and countries can be a daunting task, and SCM software offers the flexibility to track all inventory at any point in the supply chain. Additionally, the issues of compliance, scheduling, flexibility, coordination, and visibility can be greatly improved because of the combination of business processes integrated into SCM software, no matter how complex the supply chain is.

Chapter 6

Supply Chain Management Systems and the Marketplace

Chapter 6 Supply Chain Management Systems and the Marketplace If a company expects to achieve benefits from their supply chain management process, they will require some level of investment in technology. The backbone for many large companies has been the vastly expensive Enterprise Resource Planning (ERP) suites, such as SAP and Oracle. Since the wide adoption of Internet technologies, all businesses can take advantage of Web-based software and Internet communications. Instant communication between vendors and customers allows for timely updates of information, which is key in management of the supply chain. This chapter presents a list of market giants with respect to SCM solutions sorted by the total market share of their solutions worldwide.

6.1 Leading SCM Software Providers’ Financial Scorecard The worldwide market for supply chain management (SCM) software topped an estimated $6 billion last year, and is expected to reach or exceed $8 billion by 2010, according to the most current estimates from AMR Research (617-542-6600) and ARC Advisory Group. That’s a segment that includes supply chain planning (SCP) applications as well as supply chain execution systems including transportation management (TMS), warehouse management (WMS), and manufacturing execution (MES). Leading at the top are three Enterprise Resource Planning (ERP) vendors; SAP at $735 million, Oracle at $585 million, and Infor at $348 million. Others include two best-ofbreed suppliers, Manhattan Associates with $289 million and i2 Technologies with $280 million, both providers of supply chain planning and execution solutions. Driving that growth, according to John Fontanella, AMR’s vice president of research, is the need to manage pcomplex, global supply chains that include a mix of global suppliers, contract manufacturers as well as company-owned plants, third-party logistics providers and a network of transportation providers.

In fact, AMR’s research found that the typical U.S. manufacturer is managing on average more than 30 contract relationships. Supply chain management solutions allow enterprises to handle that complexity while still responding to increasingly demanding customers.

6.2 Top Supply Chain Management Software Vendors The list of top 20 SCM vendors was published in 2007 by AMR Research (617-542-6600) and ARC Advisory Group who evaluated the following vendors with respect to revenue earned in previous years and quality of benefits/services offered to their customers. 2006 Supplier

revenue (in

Web site

SCP WMS MES/MRP TMS

million) 1

SAP

$735 *

www.sap.com

x

x

x

x

2

Oracle

$585 *

www.oracle.com

x

x

x

x

3

Infor

$348 **

www.infor.com

x

x

x

x

$289

www.manh.com

x

x

4

Manhattan Associates

x

5

i2 Technologies

$280

www.i2.com

x

x

6

JDA Software

$278

www.jda.com

x

x

7

RedPrairie

$189

www.redprairie.com

8

IBS

$178

www.ibsus.com

9

Epicor

$124

10 Aldata

$99

11 Swisslog 12 HighJump

$93 ***

x

x

x

x

x

x

x

www.epicor.com

x

x

x

www.aldata-solution.com

x

x

x

www.swisslog.com

x

x

x

$90

www.highjumpsoftware.com

$85

www.brookssoftware.com

$76

www.clickcommerce.com

x

x

x

Brooks Software 13 (Applied

x

Materials) 14 ClickCommerce

x

x

2006 revenue

Supplier

(in

Web site

SCP WMS MES/MRP TMS

million) 15 Microsoft

$72

www.microsoft.com

x

16 QAD

$67

www.qad.com

x

17 IFS

$57

www.ifsworld.com/us

x

$46

www.descartes.com

x

19 Catalyst

$41

www.catalystwms.com

x

x

x

20 Logility

$37

www.logility.com

x

x

x

18

Descartes Systems Group

x x

x

x

x x

* Industry estimate ** Combined Infor, SSA Global & Provia Software *** Swisslog - Industry estimate for WMS, WCS and supply chain planning SCP: Supply chain planning WMS: Warehouse management system MES/MRP: Manufacturing execution system TMS: Transportation management system

Given below is a list of some of the top SCM software vendors along with their profile and a brief history to help develop a better understanding of the vendors themselves as well as the system offered by them.

6.3 SAP SCM

SAP Americas is a subsidiary of SAP AG, the world’s largest business software company and the third-largest software supplier overall. SAP Americas’ corporate headquarters is located in Newtown Square, PA, a suburb of Philadelphia. The company’s officers and executives lead a team of professionals dedicated to delivering high-level customer support and services. Founded in 1972 as Systems Applications and Products in Data Processing, SAP has a rich history of innovation and growth that has made it the recognized leader in

providing collaborative business solutions for all types of industries – in every major market. The company, headquartered in Walldorf, Germany, employs more than 46,100 people in more than 50 countries, and serves more than 43,400 customers worldwide. With a mission statement that emphasizes experience, knowledge, and technology for maximizing business, SAP has successfully leveraged its extensive experience to deliver a comprehensive range of solutions to empower every aspect of business operations. Organizations of all sizes can use SAP solutions – including small business solutions and solutions for midsize companies – to reduce costs, improve performance, and gain the agility to respond to changing business needs. By deploying the best technology, services, and development resources, SAP has delivered a business platform that unlocks valuable information resources, improves supply chain efficiencies, and builds strong customer relationships. And through the Global Solution Center, SAP Americas identifies customer needs and develops solutions to meet these needs. SAP is listed on several exchanges, including the Frankfurt Stock Exchange and the New York Stock Exchange, under the symbol “SAP.”

6.4 SAP Key Strengths The SAP Supply Chain Management (SAP SCM) application can help an organization transform a linear supply chain into an adaptive supply chain network, in which communities of customer-centric, demand-driven companies share knowledge, intelligently adapt to changing market conditions, and proactively respond to shorter, less predictable life cycles. The SAP solution synchronizes supply to demand – robust, configurable components allow customers to balance push and pull network planning processes, replenish inventory quickly, and execute production based on actual demand. Customers can sense and respond to changing environments with an adaptive supply chain network – and drive distribution, transportation, and logistics processes that are integrated with real-time planning processes.

SAP’s SCM solution suite provides network wide visibility, collaboration, and analytics – as well as full capability to monitor and analyze the extended supply chain. More than 25,000 small and midsize companies have selected SAP to drive operational efficiency and profitable growth.

6.5 SAP Technology The SAP solutions suite comprises licensed and on-demand applications and services. The company’s Enterprise Service-Oriented Architecture (Enterprise SOA) is a blueprint for an adaptable, flexible, and open IT architecture for developing services-based, enterprise-scale business solutions. With SAP NetWeaver as a technical foundation, enterprise SOA moves IT architectures to higher levels of adaptability – and moves companies closer to the vision of real-time enterprises by elevating Web services to an enterprise level.

6.6 SAP Supply Chain Management Solutions 6.6.1 SAP Business One Affordable, easy-to-use business management software designed specifically for small and midsize businesses. Enables customers to manage their critical business functions across sales, distribution, and financials, all in a single integrated system. With SAP Business One, companies can instantaneously access a complete and up to-the-minute view of the business, so they can respond to customers faster and grow the business more profitably. 6.6.2 SAP Business ByDesign Streamlines processes and eliminates departmental silos. Improves the efficiency and effectiveness of employees. Helps customers make better, more proactive decisions. Adapts to changing market requirements-quicker than competitors. Lets customers gain control and visibility over their entire business. Simplifies IT by allowing SAP to manage software-as-a-service. 6.6.3 SAP Business All-in-One

Configurable and extensible business solution for midsize companies. Fast-Start Program provides innovations that let customers configure their SCM solution online and receive an immediate cost estimate for a cost-effective deployment. Delivers rapid time to value and the flexibility to adapt as an organization’s needs change. Best of all, SAP Business All-in-One is an affordable and safe longterm investment. 6.6.4 SAP Supplier Relationship Management (SAP SRM) Provides strategic value through sustainable cost savings, contract compliance, and quick time-to-value. Equips customers with tools to optimize procurement operations and drive superior results through an end-to-end source-to-pay process. Activities such as spend analysis, category management, requisitioning, sourcing, operational contracts, invoicing, and supplier management are part of an integrated platform.

6.7 SAP Supply Chain Modules 6.7.1 SAP Supply Chain Management 6.7.2 SAP Business One (SAP Small Business Solution) Sales opportunity management Business partner management Inventory Production Material requirements planning (MRP) Service management Reporting 6.7.3 SAP Business By Design (SAP Midsize Business solution) Supply Chain Management Supply Chain Setup Management ○ Supply Chain Design ○ Production Modeling

○ Resource Planning and Allocation Supply Chain Planning and Control ○ Demand Planning ○ Demand Management and Order Confirmation ○ Exception Monitoring and Control ○ Supply Planning ○ Supply and Logistics Control Manufacturing, Warehousing, and Logistics ○ Inbound and Outbound Logistics ○ Internal Logistics ○ Inventory Management ○ Production ○ Quality Assurance ○ Tracking, Tracing, and Identification ○ Task Management and Automation 6.7.4 Supplier Relationship Management SAP E-Sourcing application SAP E-Sourcing on-demand solution SAP Spend Analytics SAP Contract Lifecycle Management SAP Cost and Quotation Management

6.8 Oracle

After 30 years of providing leading-edge solutions to a vast and growing base of customers, Oracle remains the gold standard for database technology and applications in enterprises throughout the world. The company is the world’s leading supplier of software for information management, and the world’s second largest independent software company. Oracle technology can be found in nearly every industry, and in the data centers of 98 of the Fortune 100 companies. Oracle is the first software company to develop and deploy 100 percent internet-enabled enterprise software across its entire

product line: database, business applications, and application development and decision support tools. It is innovation that drives Oracle’s success. With the release of Oracle Fusion Middleware, Oracle has begun debuting new products and functionality that reflect the company’s goal: connecting all levels of enterprise technology to help customers access the knowledge they need to respond to market conditions with speed and agility. Today, Oracle Real Application Clusters, Oracle E-Business Suite, Oracle Grid Computing, support for enterprise Linux, and Oracle Fusion all fuel a commitment to innovation and results that has defined Oracle for thirty years. Looking ahead, Oracle will strive to become number one in middleware and number one in software applications, just as the company has done in database applications. The organization’s goal is to continue to innovate and to lead the industry—while always making sure that it stays focused on solving the problems of the customers who rely on its software. The company’s success speaks for itself. Oracle applications run in more than 1,500 public sector organizations, 10 of the world’s top 10 banks, 20 of the world’s top 20 telecom companies, and 10 of the top 10 academic universities worldwide.

6.9 Oracle Key Strengths Oracle Supply Chain Management (SCM) is the complete, integrated solution that powers information-driven supply chains. With Oracle SCM, companies can predict market requirements, innovate in response to volatile market conditions, and align operations across global networks. Oracle SCM provides industry-specific solutions based on best-in-class applications that span product development, demand management, sales and operations planning, transportation management, and supply management. Oracle provides best-in-class global transportation management and supply management, and integrated manufacturing execution systems (MES). Oracle delivers best in class capabilities including demand management, product design, analytics, and optimization via strategic acquisitions including Demantra, Agile, and 360Commerce. Among the honors and awards bestowed on Oracle for its world-class enterprise solutions include ‘Best Supply Chain Management System,’ Intelligent Enterprise

2007 Readers’ Choice Award, ‘The Supply Chain Software Award,’ Winner of Supply Chain Asia Logistics Awards 2007, ‘Best Supply Chain Software Solution Provider,’ and winner of the Supply Chain Excellence Awards organized by SCM Logistics World 2006.

6.10 Oracle Technology Oracle Application Integration Architecture is a comprehensive set of products that deliver sustainable business process based integrations across Oracle, third party and custom applications. With its open, standards-based foundation, Oracle Application Integration Architecture enables you to create streamlined business processes that span application boundaries, while greatly shortening time to value. Oracle Fusion Middleware for Applications applies Oracle’s market-leading middleware portfolio to the leading business applications. Extend the business value of your applications across user communities, lines of business, and organizations. The only comprehensive and integrated middleware foundation certified with Oracle HCM, CRM, financial management, and other business applications.

6.11 Oracle Supply Chain Management Solutions Oracle E-Business Suite Supply Chain Management ○

Integrates and automates all key supply chain processes, from design, planning and procurement to manufacturing and fulfillment, providing a complete solution set to enable companies to power information-driven value chains.

○ Companies can anticipate market requirements and risks, adapt and innovate to respond to volatile market conditions, and align operations across global networks. ○ A unified data model provides a single, accurate view of a customer’s entire supply chain. Companies can implement lean, demand driven principles and manage their increasingly complex, global supply chains. Oracle Service Optimization Suite

○ The Oracle Service Optimization Suite (OSO) features a best-of-breed, modular, configurable design that allows customers to choose the right components that meet their unique business requirements. ○ The highly configurable nature of OSO enables it to be deployed in a broad range of supply chain sectors such as Home Delivery, Field Service and Facilities Management. ○ From capacity planning, through vehicle, technician and customer scheduling, to dispatch management and mobile operations, Oracle Service Optimization Suite can help customers take their service delivery business to the next level of operational efficiency and customer satisfaction. PeopleSoft Enterprise Supply Chain Management ○ Provides a cohesive yet flexible solution for the synchronized supply chain, driving efficiencies in cost savings over the entire supply chain—including plan-to-produce and order-to-cash business processes. ○ PeopleSoft Enterprise Supply Chain Management is a family of applications in Oracle’s PeopleSoft Enterprise product suite. ○ Extends a company’s supply chain in real time by connecting suppliers and customers with company business processes. ○ Provides integrated spend management for all categories of goods and services. ○ Delivers embedded analytics to monitor supply chain performance and adjust as conditions and business goals shift. JD Edwards EnterpriseOne Supply Chain Management ○ These software modules promote revenue growth and cost reduction by improving fulfillment rates, allowing better asset and capacity utilization and expanding market dominance while reducing inventory, shrinking lead times, and achieving overall cost of goods improvements. ○ JD Edwards Supply Chain Management is part of Oracle’s JD Edwards EnterpriseOne family of applications. Oracle Transportation Management ○ Delivers robust transportation planning and execution capabilities to shippers and third party logistics providers.

○ Integrates and streamlines transportation planning, execution, freight payment, and business process automation on a single application across all modes of transportation, from full truckload to complex multi-leg air, ocean, and rail shipments. ○ Lowers transportation costs, improves customer service and asset utilization, and provides flexible, global fulfillment options.

6.12 Oracle Supply Chain Modules Oracle Supply Chain Management Suite ○ Advanced Procurement ○ Logistics & Transportation ○ Product Lifecycle Management ○ Asset Lifecycle Management ○ Manufacturing ○ Supply Chain Planning ○ Order Fulfillment ○ Order Management Oracle Service Optimization Suite ○ Oracle Real-Time Appointment Scheduler ○ Oracle Real-Time Dispatch Manager ○ Oracle Real-Time Resource Manager ○ Oracle Real-Time Resource Scheduler PeopleSoft Enterprise Supply Chain Management ○ Customer Order Management ○ Supply Chain Planning ○ Inventory and Fulfillment Management ○ Manufacturing Solution JD Edwards EnterpriseOne Supply Chain Management ○ Food and Beverage Producers ○ Manufacturing ○ Supply Chain Execution (Logistics) ○ Supply Chain Planning (SCP) ○ Supply Management (Procurement)

ORACLE Transportation Management ○ Forwarding and Brokerage Operations ○ Freight Payment, Billing, and Claims ○ Fusion Transportation Intelligence ○ Logistics Inventory Visibility ○ Transportation Operational Planning ○ Transportation Sourcing

6.13

Manhattan Associates

Manhattan Associates is a leading supply chain solutions provider. The company’s supply chain planning, supply chain execution, business intelligence and business process platform capabilities enable its more than 1,200 customers worldwide to enhance profitability, performance and competitive advantage. From flexible, intuitive planning, to advanced forecasting and replenishment, to integrated supply chain execution -- Manhattan Associates provides a comprehensive range of easy-to-use solutions. These solutions are designed to help customers run their businesses more efficiently, grow profits, delight customers -- and beat competitors. The company’s team of experts offers years of real-world experience and is committed to helping companies solve the everyday problems they face. By combining planning and execution expertise with the highest level of customer service, Manhattan Associates helps companies manage their entire supply chain more efficiently than ever before. Their customers have the opportunity to leverage a single solution provider for all their supply chain needs to make their jobs easier and serve their customers better. Globally, since 1990, Manhattan Associates has helped customers use technology to identify the weak links in their supply chains, reconfigure their processes and optimize their performance. Shortly after its inception in 1990 in Manhattan Beach, California,

Manhattan Associates gained a reputation for providing world-class warehouse management solutions. Since that time, the company has continually expanded its products and added capabilities to better serve its customers. Today Manhattan Associates offers a holistic approach to supply chain with SCOPE: Supply Chain Optimization—Planning through Execution, which brings together all the tools businesses need to integrate upgrades and optimize their supply chain. Looking to the future, Manhattan Associates is aggressively pursuing the dynamic level of growth it must achieve to meet the needs of its global customers. In 200 alone, Manhattan Associates added 400 employees to help it initiate 260 implementations. The company’s investment in research and development continues to exceed any others, and has increased 250% in the last five years, to a 2007 total of $45 million.

6.14 Manhattan Associates Key Strengths The company’s software portfolio includes five key Supply Chain Solution Suites: Planning and Forecasting, Inventory Optimization, Order Lifecycle Management, Transportation Lifecycle Management and Distribution Management. These solution suites are enhanced by Platform Applications -- including Supply Chain Intelligence, Supply Chain Visibility and Supply Chain Event Management -that organize and deliver the information and processes needed to optimize supply chains across functions and locations within and outside an enterprise. For 17 years, Manhattan Associates has concentrated exclusively on helping companies streamline their supply chains to achieve lower costs, higher profits and happier customers. Virtually all of the company’s 2,300 employees focus on supply chain optimization. They work directly to bring value to 1,200 customers through research and development, training, implementation and ongoing support. Manhattan Associates builds its knowledge of supply chain optimization every day so that it can bring its customers the best possible solutions for their needs. Each year Manhattan Associates invests more in supply chain research and development than any other company in the world—in excess of $45 million in 2007.

In addition to its many PhDs and other experts, the Manhattan Science Advisory Board brings together thought leaders and international researchers from outstanding academic institutions such as MIT, Columbia University and Georgia Tech to discuss advances in the underlying science, address new economic developments and identify fruitful areas of research. Manhattan Associates is committed to offering the best and deepest supply chain solutions to its customers.

6.15 Manhattan Associates Technology Manhattan Associates’ Supply Chain Process Platform provides a unifying architecture that fosters agility and scalability while minimizing solution implementation, evolution and support costs. More than 1,200 customers worldwide use Manhattan Associates’ global, on-demand and licensed supply chain solutions to enhance profitability and build sustainable competitive advantage.

6.16 Manhattan Associates Supply Chain Management Solutions 6.16.1 Manhattan’s SCOPE: Supply Chain Optimization Planning through Execution optimizes all the links in the supply chain from order placement to delivery. Planning and Forecasting provides the crucial front end to an organization’s supply chain that takes a customer’s business to a higher level. Demand Forecasting lets decision makers predict demand at any combination of product and location nodes. Demand Forecasting is designed and synchronized to produce the optimal forecast input for Inventory Optimization, financial or assortment planning. Multi-Channel Planning integrates planning for the organization’s web, catalog and store channels to reduce redundancy and increase efficiency, while still respecting the unique characteristics of each channel. Financial Planning delivers top-down or bottom-up planning with an easy to use, but powerful solution that manages multiple versions of plans across categories, channels and time periods.

Assortment Planning customizes assortments by channel. Lets customers see buyers’ changes immediately so they can reach their business goals with the right mix of products. Item Planning synchronizes with assortment planning to support time-phased planning and tracking for multiple key performance indicators. Promotion Planning coordinates all aspects of promotions from one solution.

6.17 Manhattan Associates Supply Chain Modules 6.17.1 Manhattan’s SCOPE: Supply Chain Optimization Planning and Forecasting ○ Demand Forecasting ○ Multi-Channel Planning ○ Assortment Planning ○ Item Planning ○ Promotion Planning ○ Store Clustering Inventory Optimization ○ Replenishment ○ Multi-Echelon ○ Vendor Managed Inventory ○ Collaboration Gateway Order Lifecycle Management ○ Distribution Order Management ○ Reverse Logistics Management ○ Collaboration Gateway Transportation Lifecycle Management ○ Transportation Procurement ○ Transportation Planning & Execution ○ Logistics Gateway ○ Fleet Management ○ Appointment Scheduling ○ Yard Management

Distribution Management ○ Warehouse Management ○ Slotting Optimization ○ Labor Management ○ Billing Management ○ Supplier Enablement ○ Hub Management

6.18 Infor

Infor is one of the world’s largest providers of business software, with approximately $2.1 billion in revenue, and the 10th largest software company in the world. A company unparalleled in application breadth, market experience, open technology and global reach, Infor has 9,200+ employees, direct offices and implementation and support capabilities in 100 countries, and over 70,000 customers worldwide. The thought leaders at Infor understand that their customers want to reduce the number of vendors they work with and Infor strives to continue as their trusted “vendor of choice.” Infor has a consistent 95% customer retention rate — one of the highest in the industry and 72% of its license revenues are generated by its current customers. Additionally, over 1,000 new customers chose Infor last year for its unparalleled application breadth, open technology, and global reach. The company is committed to continuing its growth by broadening its best-in-class focus, and by providing the most innovative solutions and services globally. Customers can expect Infor to continue adding solutions based on market need and customer demand. Infor is a unique software company — four years old with more than thirty years experience. It has the stability, the agility, and the resources to meet the business demands of a rapidly changing world.

6.19 Infor Key Strengths Backed by domain experts who understand the supplier collaboration requirements of manufacturers, Infor SRM (Supplier Relationship Management) enables rapid demand fulfillment and performance evaluation by presenting a single face to suppliers based on information combined from disparate enterprise resource planning systems. Infor SRM creates a real-time supplier collaboration environment. This advanced electronic data interchange (EDI) and web-enabled solution delivers faster, more accurate insight into an organization’s supply chain. The company’s solution suite complements a customer’s ERP software system with electronic communication of demand to all suppliers and helps deploy lean replenishment methods with its electronic Kanban and supplier-managed inventory capabilities. Businesses run more efficient supply operations, reduce inventory levels, increase order accuracy, and gain the flexibility to respond immediately to changes in customer demand.

6.20 Infor Supply Chain Management Solutions 6.20.1 Infor SCM (Supply Chain Management) Infor SCM’s supply chain logistics and inventory management software solutions help companies reduce supply chain operational costs for increased profitability, improve customer service to enhance competitiveness, and manage growth and expansion to improve revenues and market share. Infor Supply Chain Management is a global solution with implementations at over 1,600 customer sites in 40 countries Infor SCM delivers a smart solution suite that comprises Strategic Network Design, Demand Planning, Distribution Planning, Manufacturing Planning, .Production Scheduling, Transportation

and

Logistics

Planning,

Warehouse

Management,

and

Event

Management. RFID—Infor SCM provides a comprehensive RFID-enablement framework delivering business value through process optimization for manufacturers and other companies, as well as compliance solutions for retail, pharmaceuticals, the US Department of Defense, and others. 6.20.2 Infor SRM (Supplier Relationship Management) This advanced electronic data interchange (EDI) and web-enabled solution delivers faster, more accurate insight into the supply chain—insight that enables customers to

save millions of dollars by replacing fax and value-added network (VAN) communications,

minimizing

premium

freight

charges,

improving

supplier

performance, and lowering administrative expenses. Infor’s SRM solution helps companies achieve technology-enabled business process excellence, increase productivity and cash flow, improve operational efficiency and quality, and increase supplier visibility. The company’s solutions suite allows organizations to respond faster to change and opportunity, enable innovation, and profit from a strong, flexible, lean supply chain. Infor

SCM

complements

an

existing

ERP software

system

with

electronic

communication of demand to all suppliers and helps deploy lean replenishment methods with its electronic Kanban and supplier-managed inventory capabilities. With Infor SCM, businesses run more efficient supply operations, reduce inventory levels, increase order accuracy, and gain the flexibility to respond immediately to changes in customer demand. 6.20.3 Infor SRM SupplyWeb Infor SRM SupplyWeb is the leading supplier relationship management (SRM) solution in the automotive industry. Infor SRM SupplyWeb version 10 includes new features to improve collaboration between customers and suppliers, providing new tools designed to enhance data accuracy, and demand and order management. SupplyWeb offers manufacturers the benefits of a proven SRM solution that is easily integrated into their existing ERP system. For customers, this new version of SupplyWeb demonstrates Infor’s commitment to enrich the value of their current investments, extend their core ERP applications with new business-specific solutions and evolve the Infor product line to produce next-generation solutions. SupplyWeb significantly strengthens the relationship between suppliers in the supply chain with the addition of new modules, Production Invoicing and Purchase Order Collaboration, which automate specific business functions related to order processing Production Invoicing improves data accuracy between customers and suppliers eliminate discrepancies in pricing and payables and allow for more timely payments from the customer. Purchase Order Collaboration facilitates a purchase order negotiation process, allowing customers and suppliers to set terms before committing to an order.

6.21 Infor Supply Chain Management Modules 6.21.1 Infor SCM (Supply Chain Management) Strategic Network Design Demand Planning Distribution Planning Manufacturing Planning Production Scheduling Transportation and Logistics Planning Warehouse Management System RFID Event Management 6.21.2 Infor SRM (Supplier Relationship Management) Demand Fulfillment and Performance Evaluation Electronic Kanban and Supplier-Managed Inventory Capabilities Advanced Electronic Data Interchange (EDI) and Web-Enabled Solution 6.21.3 Infor SRM SupplyWeb Production Invoicing Purchase Order Collaboration Supplier Cumulative Quality Management Flex Fields Receipt Reconciliation

6.22 JDA

JDA Software Group, Inc. is a global leader in delivering integrated software and professional services for the retail demand chain. By capitalizing on its substantial market position and financial strength, JDA commits significant resources to advancing its best-of-class collection of solutions that address a wide array of critical business functions including merchandise and inventory management, store operations and point of-sale, supply chain collaboration, and business analysis. Across the global ERP landscape, JDA Software Group supplies the links in the supply chain. The company’s supply and demand optimization (SDO) software helps retailers and other businesses manage supply and demand chains, as well as business processes ranging from planning and forecasting to e-commerce and store operations. The company also offers point-of-sale applications to handle back-office functions, including inventory management, receipts, and returns. Other products include analytic applications for decision support and collaborative tools for maintaining product and catalog information with partners, distributors, and suppliers. JDA boasts more than 5,400 customers worldwide. With North American operations established in 1985, JDA is headquartered in Scottsdale, Arizona and employs more than 1,200 associates operating from 32 offices in major cities throughout North America, South America, Europe, Asia and Australia.

6.23 JDA Key Strengths JDA has been serving the supply and demand chain for nearly 30 years. The company’s Supply & Demand Optimization solution set is powered by a collection of best-in-class products designed to enable retailers, manufacturers and whole sale distributors to more profitably anticipate, create and satisfy customer demand. This comprehensive solution integrates JDA’s proven planning, analysis optimization and execution capabilities with collaborative workflow, for seamless integration and interoperation spanning a wide range of processes across the Customer-Driven Value Chain.

With Supply & Demand Optimization, decision makers can work together to reduce operational costs and increase top line revenues across the enterprise, and down to the store level. JDA customers represent more than 65% of software license sales each quarter, a testament to the real demand chain results that JDA repeatedly delivers. JDA acquired Manugistics in July 2006. This provider of demand and supply chain solutions enabled JDA to grow its product line with supply management, demand management and pricing, and transportation and logistics applications. JDA is uniquely positioned to support an optimized Customer-Driven Value Chain. It can help its customers to optimally plan various aspects of their business – from raw materials acquisition, through manufacturing and replenishment, to the shelf.

6.24 JDA Technology JDA offers several hosting and on-demand managed services to ensure a fit tailored specifically to the needs of its customers. Whether an organization’s needs are as simple as hardware hosting or as substantial as complete application management, JDA provides a full-spectrum technology platform and support.

6.25 JDA Supply Chain Management Solutions 6.25.1 JDA Supply & Demand Optimization 6.25.1.1 Enterprise Planning A collaborative and configurable, workflow-driven planning solution that synchronizes all planning metrics, including sales, margins or turns, across functional organizations and reconciles them up and down the enterprise hierarchies. Enterprise Planning ensures that strategic goals and objectives are met by providing all participants with visibility to corporate goals so that they can align their plans accordingly. Enables rapid response to changing market conditions leveraging a proactive, event driven environment so that customers can improve productivity. Supports and optimizes the strategic, financial and operational planning activities across the Customer-Driven Value Chain so that customers are better equipped to meet sales and revenue targets. Provides a single, integrated solution for financial, merchandise, channel and key item planning so that customers can better manage their inventory.

6.25.1.2 Space & Category Management Enables retailers and manufacturers to plan and execute category and merchandise plans designed to achieve demand-based precision merchandising. Tailors assortments, including product launches and group-specific go-to-market strategies, so that customers can improve cluster results and meet true local demand increases movement at full retail value while lowering carrying costs and decreasing out-of-stocks and excess inventory, so that customers can enhance their overall profitability. 6.25.1.3 Price & Promotion Management Optimizes pricing (taking a competitors’ pricing into account) and promotions planning and execution to generate maximum sales and margin dollars – to better shape demand and match supply, ultimately taking the guesswork out of price setting and promotions planning, delivery and measurement. Improves financial predictability, responsiveness and accuracy, so that customers can determine the best mix of price and promotion to help them drive revenues and better understand impact on the forecasts. Improves utilization of promotional dollars at all levels of the organization, so that customers can maximize their return on promotional spend. Generates maximum value from end-oflife, end-of-season and excess inventory, so that customers can drive up overall margins. 6.25.2 JDA Supply Chain Modules JDA Supply & Demand Optimization Enterprise Planning Space & Category Management Price & Promotion Management Demand Planning Allocation & Replenishment Supply & Manufacturing Management Network & Inventory Optimization Collaboration

6.26

Epicor

Epicor Software is a global leader delivering business software solutions to the manufacturing, distribution, retail, hospitality and services industries. With 20,000 customers in over 150 countries, Epicor provides integrated enterprise resource planning (ERP), customer relationship management (CRM), supply chain management (SCM) and enterprise retail software solutions that enable companies to drive increased efficiency and improve profitability. Founded in 1984, Epicor celebrates 25 years of technology innovation delivering business solutions that provide the scalability and flexibility businesses need to build competitive advantage. Epicor provides a comprehensive range of services with a single point of accountability that promotes rapid return on investment and low total cost of ownership, whether operating business on a local, regional or global scale. At the core of Epicor is an adaptable, collaborative architecture that satisfies the needs of any manufacturer regardless of country, industry or device, enabling business anywhere business without barriers. Epicor delivers unprecedented business management, providing real time, in-context business insight throughout any manufacturing environment. Epicor is a multidimensional solution uniquely equipped with rich feature sets supporting any environment including make-to-order (MTO), engineer-to-order (ETO), configureto- order (CTO), mixed-mode, make-to-stock and discrete manufacturing. Built on the second-generation service-oriented architecture (SOA), Internet Component Environment (ICE) 2.0, Epicor fuses modern Web 2.0 technologies with True SOA delivering unprecedented flexibility and visibility across multiple departments. Epicor’s ERP solutions go beyond traditional ERP, encompassing processes outside the production and distribution cycle. In addition to a full range of manufacturing capabilities, Epicor extends tools across backoffice processes including financial management, customer relationship management, sales and customer service, providing real-time, in context information to employees from the shop floor to the top floor.

6.27 Epicor Key Strengths Epicor is a global leader dedicated to providing business software solutions to companies around the globe. With comprehensive solutions, service and support, the company helps more than 20,000 of the world’s best companies run their business more efficiently and effectively. Epicor’s ERP solutions automate and optimize business operations by integrating data and processes into a single unified solution to maximize profitable growth. Epicor delivers a single end-to-end software solution for business. The company offers a comprehensive range of professional services with its solutions, providing a single point of accountability to promote rapid return on investment and lower total cost of ownership. In addition to award-winning financial, inventory and manufacturing management capabilities, Epicor’s ERP solution delivers in-depth supply chain management, customer relationship management, business intelligence and enterprise performance management functionality. Epicor solutions are built to comply with local governmental and industrial requirements in a majority of countries around the globe.

6.28 Epicor Supply Chain Management Solutions Highlights 6.28.1 Epicor 9 The latest Epicor ERP solution, Epicor 9, represents the convergence of Epicor’s rich tool sets into a single product. As the first solution built on ICE 2.0, Epicor 9 redefines the ERP experience, combining a full range of enterprise, manufacturing and distribution functionality with the most collaborative, flexible service oriented architecture available. Epicor 9 eliminates the technological and industrial boundaries that stifle productivity, enabling business anywhere - business without barriers. 6.28.2 Epicor Manufacturing Epicor Manufacturing is designed to meet the needs of progressive manufacturers, regardless of shop environment. Epicor Manufacturing delivers built-in workflow processes to manage the entire order cycle: from marketing, sales and customer relationship management, through production, planning, sourcing and procurement to installation, service and financial recognition. Complimented by a full-range of

enterprise capabilities, Epicor Manufacturing helps achieve maximum efficiency at each plant, while providing innovative technology to span the entire enterprise. 6.28.3 Epicor Distribution Epicor Distribution is an end-to-end solution providing tools to efficiently assemble ship and deliver the finished goods. Epicor Distribution offers a full range of order management, supply chain and warehousing capabilities built on a single business platform based on industry-leading Web services architecture. Complimented by a full suite of enterprise functionality, Epicor Distribution supports the needs of truly agile distributors.

6.29 Microsoft Dynamics

Founded in 1981, Microsoft Business Solutions, Inc. is a global provider of enterprise business solutions for the midmarket. Microsoft Business Solutions offers e-business applications for financials, distribution, project accounting, electronic commerce, human resource management, manufacturing, sales and marketing management, and customer service and support. Named for the third time to the “Top 100 Companies to Work for in America” list, Microsoft Business Solutions employs more than 3,800 employees worldwide. The company’s products and services automate essential business functions and enhance the strategic value of financial and operational information.

6.30 Microsoft Business Solutions Products are sold and implemented by a unique worldwide network of independent partner organizations that share the company’s commitment to lasting customer relationships. Microsoft’s research and development facilities are located primarily in Redmond, Washington with smaller facilities located in Mountain View, California; Fargo, North Dakota; Beijing, China; Dublin etc. As of June 30, 2005, Microsoft employed approximately 61,000 people.

Like its size, Microsoft’s ambitions are anything but small. The world’s number one software company provides a variety of products and services, including its Windows operating systems and Office software suite. The company has expanded into markets such as video game consoles, servers and storage software, and digital music players. In early 2008 the company made an unsolicited bid to acquire Yahoo! for about $44.6 billion. Success includes the flexibility to respond to emerging markets, such as today’s growth opportunities in China and Eastern Europe, and to the ever changing needs of customers. In response to these global challenges, Microsoft offers Microsoft Dynamics, a suite of integrated, adaptable business applications for small and medium-sized organizations and divisions of large enterprises. These integrated solutions—delivered through a worldwide network of experienced Microsoft Certified Partners—work like and with familiar Microsoft software and help automate and improve financial, customer relationship, and supply chain management.

6.31 Microsoft Dynamics Key Strengths With Microsoft Dynamics, an organization can connect its entire supply chain in a productive, fast-moving flow. The business value of vendors and business partner relationships is enhanced significantly. And these increased efficiencies in distribution translate to improved customer satisfaction and reduced cost of doing business. A Microsoft Dynamics solution provides employees with a multitude of ways to plan, coordinate, and executive delivery of goods and services productively. Companies realize strong return on investment as a result of better individual and team productivity, streamlined operations, and more effective collaboration. Using Microsoft Dynamics, people can effectively improve supply chain efficiency, with minimal time spent on product training and learning. The user interface is familiar, consistent, and comfortable—just like that of other Microsoft programs people work with. Microsoft Dynamics gives people across the supply chain visibility into customer demand and the delivery of goods—helping them make faster, better business decisions and take the best course of action when adjustments are necessary.

With features such as automatic notification, a team can easily can keep tabs on inventory, helping sustain optimal item levels without tying up funds in the warehouse. They can plan purchasing at favorable terms and in a timely manner, controlling costs and ensuring that the organization meets its customer commitments. And they can connect closely with operations to make sure manufacturing has the materials it needs to deliver products on time. Microsoft Dynamics’ supply chain strengths can help the team fulfill customer commitments with greater reliability and accountability, and deliver the products and services customers want, when they need them.

6.32 Microsoft Dynamics Technology The Microsoft Dynamics licensed suite of software products and applications, built on familiar and widely used Microsoft technologies, offers a wide array of full-spectrum ERP solutions for Supply Chain Management.

6.33 Microsoft Dynamics Supply Chain Management Solutions 6.33.1 Microsoft Dynamics AX Automates sales and purchasing and streamlines intercompany operations. Enables Web access so that the sales team to exchange accurate and up-to date information with vendors, sell products and services, exchange information with consultants, and configure complex products company information--anytime, anywhere. Helps manage a broad range of other business areas, minimizing the need for multiple systems. 6.33.2 Microsoft Dynamics NAV Delivers the tools a business needs to respond quickly to customers, rapidly pursue new market opportunities, and improve profitability by working efficiently with trade partners. Tightens the distribution processes and improves inventory management for single- or multi-site warehouses, and handles order processing and demand planning. Helps manage a broad range of other business areas according to the particular needs of the organization. 6.33.3 Microsoft Dynamics GP

As an ERP software solution, Microsoft Dynamics for distributors manages inventory and goods to keep distribution moving smoothly. Maintains tight control over distribution and streamlines the pick/pack/ship cycle to gain competitive advantage. From forecasting to delivery, Microsoft Dynamics GP can help accelerate sales order processes and reduce costs per transaction. Integrated applications help manage inventory more effectively, fill orders faster, and improve customer service with ecommerce. Enables a company to meet customer demand efficiently, with inventory and order management that reduces cost, improves accuracy, and speeds fulfillment. 6.33.4 Microsoft Dynamics SL Microsoft Dynamics SL (formerly Microsoft Business Solutions–Solomon) offers systems for the distribution industry. Integrated applications help efficiently manage inventory, order, and purchasing management; sales forecasting; e-commerce; and warehouse management. These applications connect directly with dozens of other business management systems to help organizations meet the diverse needs of their business, including accounting, CRM, human resources and payroll, supply chain management, manufacturing, and more.

6.34 Microsoft Dynamics Supply Chain Modules 6.34.1 Microsoft Dynamics AX Commerce Gateway Enterprise Portal Logistics Master Planning Product Builder Production Supply Chain Visibility Trade Warehouse Management (WMS) 6.34.2 Microsoft Dynamics NAV

Inventory Management Warehouse Management Supply Planning Business Notifications Sales and Purchase Document Workflow Approvals 6.34.3 Microsoft Dynamics GP Distribution II 6.34.4 Microsoft Dynamics SL Advanced Shipping Manager Bill of Materials Inventory Management & Replenishment Landed Cost Order Management Order to Purchase Purchasing Work Order

6.35 Domestic Vendors of SCM Systems Many Pakistani software companies offer information systems with database support. While most of the software companies in Pakistan are registered as a franchise for SAP and Oracle products, only a few among them offer ERP systems of their own. One of the biggest franchises of SAP and Oracle products in Islamabadcity is ERPSoft. While most of the companies consider purchasing software from local vendors, SAP and Oracle still have got a huge market share in Pakistani software industry when it comes to ERP systems or Supply Chain Management Systems (SCMS). Companies that can afford huge budgets, while not sacrificing quality, go for purchasing SAP or Oracle products. It is surprising, however, that many foreign companies including companies from India and UAE offer excellent ERP, CRM and SCM systems that offer a wide range of functionality without any major setbacks in the system and costing unpredictably lesser than those developed by domestic software industry.

Companies like TeraData (NCR), Ultimus, DPS, etc. have developed their own ERP systems giving it different terminologies like Business Process Management (BPM), B2B systems (Business-to-Business), Enterprise Class etc. Some of these systems provide full supply chain support while others only support half of the functionality eliminating the key business planning software features. Some of the supply chain management systems vendors in Pakistan are listed below along with the features offered by the systems:

6.36 Teradata NCR

Teradata is the world’s largest company solely focused on raising intelligence through data warehousing and business analytics. Teradata delivers award-winning, integrated, purpose built platforms based on the most powerful, scalable, and reliable technology platform in the industry. Their assets include: •

Approximately 6,000 associates in more than 60 countries

•

Strong diversified client base of over 900 customers worldwide and companies of all sizes

•

2,000+ implementations worldwide

Trillions of bytes of data don't faze Teradata. The company designs and implements enterprise data warehousing systems that store information about customers, finances, operations, and other business data. Its software includes its core database system, as well as applications for managing data, demand and supply chains, customers, compliance and risk, and performance. The company also offers consulting, support, and training services. Teradata targets companies in the entertainment, financial services, government, health care, insurance, manufacturing, retail, telecom, and transportation sectors. 6.36.1 Products •

Customer Relationship Management: Teradata Relationship Manager

•

Data Warehousing

•

Demand Chain Management

•

Financial Management

•

Industry Solutions

•

Profitability Analytics

•

Supply Chain Intelligence

•

Master Data Management

6.37 Active Enterprise Intelligence™ Staying ahead of your competition means that you create and deploy consistent and upto-date intelligence throughout your enterprise, enabling you to achieve “pervasive business intelligence.” Mastering this requires a synergistic combination of two powerful forms of business intelligence (BI): •

Strategic Intelligence - for back office knowledge workers. Planners, financial analysts, marketing managers, and others use historical trends and insights to make informed decisions concerning customers, inventory, suppliers, products, and partners.

•

Operational Intelligence - for front-line workers and systems. This extends the value of your enterprise data warehouse to customer service representatives, retail cashiers and call-center agents - anyone who makes day-to-day decisions.

Teradata’s strategy for pervasive BI, known as Active Enterprise Intelligence™, provides the foundation for near real-time, smarter decisions throughout your organization. We deliver Active

Enterprise

Intelligence™

solutions

through

our Active

Data

Warehousing™ technology, professional services expertise and partner products.

6.38 Enterprise Data Warehousing Business leaders are partnering with their IT organizations to help drive sales, reduce risk, and manage growing regulatory compliance. They are also relying on IT to provide them with a 360 degree view of customers, supply chain, and financial and performance management.

To deliver on business requirements and technical requirements such as predictable performance, IT organizations must leverage best of breed technologies. These technologies must evolve and grow with the business. An Enterprise Data Warehouse (EDW) from Teradata allows you to better analyze business operations and drive smarter, faster decisions - providing you with a single view of your business. At the heart of our solutions is a platform of products that grow with you and a world class database Teradata 12. Teradata offers a new family of purpose-built platforms that span the business and analytical data warehouse needs of your entire organization. The EDW platform is the Teradata Active Enterprise Data Warehouse and is surrounded by a full suite of data management tools and robust data mining software. Plus, you'll receive expert data warehouse advice from the industry's most experienced data warehouse consulting professionals. These are just a few of the reasons why industry leaders worldwide choose Teradata solutions and services. Teradata partners and integrates with leading business intelligence companies such as SAS, SAP, Oracle, Microsoft, and Microstrategy. Teradata also relies on its world class partners to deliver key solutions built on the Teradata EDW including data acquisition and integration services from companies such as AbInitio, Attunity, GoldenGate, Hummingbird, IBM, and Informatica.

6.39 Ultimus

Ultimus is the first BPM Company with complete global capabilities, including offices in 16 countries and customers in 80 countries. The Ultimus product is available in 20 languages, and is supported by a worldwide professional services team and a 24/7 support center. With over 1,900 customers worldwide, Ultimus has deployed BPM processes for more customers than any other BPM company. Over 125 Large Enterprise customers, with annual revenues above $1 Billion, have deployed Ultimus BPM. With over 15 years experience and more than 1,900 customers, many with extensive process deployments, Ultimus has deployed more BPM processes than any other BPM

company. Ultimus is recognized for innovation and has a history of BPM industry firsts. Customers and analysts agree that Ultimus has the most complete and mature set of capabilities to support both the human needs and system needs of business processes.

6.40 Business Process Management Business Process Management is about making things work better. It’s about making your life easier. It’s about making your business more efficient, more effective, and more successful. We believe you should be relentless in your pursuit of success. That’s why we believe in continuous process improvement: We aren’t just workflow software. We go far beyond simple workflow automation, and we don’t stop at mere process management. We bring you a suite of tools with the power to match your passion, and the adaptability to meet your changing business needs instantly.

6.41 Ultimus BPM Solutions for Supply Chain Management 6.41.1 Precision and Efficiency are Your Competitive Advantage While many companies have clear processes to manage their supply chain, most of these processes continue to be manual, paper-based processes that are slow and cumbersome to manage. The result of Business Optimization for Supply Chain Management can mean: •

Faster time to market with new products

•

Rapid change response

•

Increased inventory turns

•

Less cash tied up in work in process

6.41.2 Ultimus BPM-based Solutions Ultimus BPM is automating hundreds of SCM business processes including new product development, prototyping, product manufacturing, quality assurance, packaging, raw materials, warehousing and shipping and custom quotes. By implementing business optimization through Ultimus, manufacturers such as General Electric, Newell Rubbermaid, Bernstein AG, Siemens, Solectron-Mexico, FEMSA, Alcatel, Otis and Stryker, Quadrant have eliminated supply chain process inefficiencies,

and realized rapid, measurable benefits that extend across departments in their entire organization. Some of these benefits include: •

Reduce Turn-around Time for Build-to-Order Processes

•

Produce More Accurate Quotes

•

Accelerate Continuous Process Improvement Initiatives such as Six Sigma

•

Gain End-to-end Visibility Into Mission-Critical Processes

•

Reduce Latencies in Production Processes

•

Strengthen Relationships with Customers and Partners

6.42 DPS

Among IT consulting firms, DPS is unique in its emphasis on developing compatible solutions for its clients—not only in terms of technology, but in terms of corporate culture as well. Information solutions consist not merely of software or hardware, but of a way of thinking and making decisions as a group. A clever technical solution is not enough; it will succeed only if it matches the client's long term business goals and values. We take you as our partner first and our client afterwards. We partner with our clients IT department and provide them support at all the three levels, strategic, tactical and operational. We believe in people before software and strategy before systems. We've worked at the highest levels of the corporate environment—from the inside. We're sensitive to the cultural aspects of change just as surely as we're alert to the latest trends in IT development. We create effective sponsorship as well as effective code.

6.43 Business to Business - B2B 6.43.1 Supply Chain Benefiting both Buyers and Suppliers Supply chain management, through its impact on resources, directly affects both the bottom line and customer satisfaction. Nothing is more crucial to your success than

effectively managing the supply chain. Relying on outdated means of procurement provides an open invitation to competitors to take away ever-larger shares of your market. The DPS B-to-B package offers medium and large enterprises a secure online venue for procurement—a venue completely under your control. A streamlined supply chain enables economies for buyers and vendors, better service to customers, and the opportunity to expand into new markets and forge new relationships.

6.44 DPS B2B Packages For the chain, the browser-based interface lets you maintain vendors and stores, review and update products and purchase contracts, assign retail prices, control delivery schedules, place and track orders, and review profit margins on a product-by-product basis. For the store, DPS B-to-B lets you review information for products, prices, purchases, and delivery schedules, as well as print invoices and place and track orders. For the vendor, DPS B-to-B lets you manage product offerings and prices, manage costs, maintain existing contracts, negotiate delivery schedules, and view and confirm orders.

6.45 B2B Product Features In technical terms, DPS B-to-B is a modular package consisting of Java servlet-based business logic and a customizable HTML client. The package can be integrated with any enterprise-strength back end, including Oracle, DB2, or SQL Server. DPS B-to-B is designed for robust performance in a high-volume environment, yet is easily scalable to suit medium-sized enterprises as well.

6.46 Xavor Corporation Xavor is an Irvine, California-based Management & Technology Solutions firm with Global 1000 clients, complete with an outsourcing set-up. Xavor uses a proprietary workshop-driven consultative approach to help clients with •

Establishing team-driven Leadership and Ownership

•

Define an Organization Model

•

Define Policies

•

Define Processes

•

Build Technology Systems

•

Define and build Metrics

•

Define Roles & Responsibilities

•

Design Management Systems

•

Build a sustainable Infrastructure

6.47 Vendor Managed Inventory Solution 6.47.1 Xavor's VMI (Vendor Managed Inventory) Supply Chain Integration Solution, a process management enablement accomplished by a scalable information technology solution that allows manufacturers/suppliers of goods to monitor their sales consumption by linking directly with retailer/reseller's store level point of sale data, using industry standard XML data interchange B2B standards such as EDI or RosettaNet. Replenishment order decisions are made using store and product combo information by analyzing inventory data statistically in order to maximize the customer service level while minimizing inventory and logistical costs. 6.47.2 VMI Supply Chain Integration Platform provides: Business To business Integration Efficiency by inventory integration with partners

Industry standard protocols and customized protocols for our clients 6.47.3 How is it done? Supply chain analysts work closely with the customer in order to understand the relevant vendor and supplier inventory related processes. The analyst builds a VMI integration process model with replenishment rules. Xavor's Systems Integration Analysts work closely working with the customer's technology team to implement the technology of the customer's choosing, such as Sterling, BizTalk or Tibco. Xavor's team of analysts customizes a solution that suffices customer's business process reengineering and automation needs. 6.47.4 Benefits: •

Integrated delivery solution

•

Combined forecast and better business solutions

•

Gap reduction between client and vendor material management

Chapter 7

Proposed System for Pepsi Haidri Beverages

Chapter 7 Proposed System for Pepsi Haidri Beverages This chapter presents a detailed high-level SCM system design for Pepsi Haidri Beverages. It also identifies which part of the systems need customization and which of them need reengineering. The chapter starts by providing a complete justification as to why supply chain management system is needed and what benefits the company expects to gain by adopting such systems.

7.1 Why SCM? Up until 10 or 15 years ago, the term “supply chain” did not even exist. Back then, purchasing was purchasing, warehousing was warehousing, transportation was transportation and each function operated in relative isolation from one other. Today, most companies are looking for ways to integrate these and additional functions into a holistic supply chain strategy. Supply chain execution involves how well things move through the supply chain—the operations that occur from the raw materials delivered to a manufacturer, then to the distributor, and finally to the customer. While more and more companies are seeking ways to coordinate and streamline their supply chains, the overall task can be intimidating. Companies face numerous challenges, including increasing transportation costs, growing retailer influence, tightening requirements for fast order fulfillment, SKU proliferation, physical labor constraints and the demand for consistently “perfect orders.” Indeed, these very challenges are what make supply chain management so important to embrace. Nate Rosier, director, supply chain practice, for supply chain consulting firm CIBER Inc. (Greenwood Village, CO, USA) specializes in supply chain initiatives for the beverage industry. “A lot of beverage distributors have inventory management challenges,” he points out. “For example, a lot of our clients import products from around the world or buy from smaller suppliers that still don’t even place bar codes on their products or send advance shipment notifications.” In addition, Rosier says that a

lot of beverage distributors are still behind the curve when it comes to the implementation and usage of supply chain technology.

7.2 Getting Started The first step in creating and/or improving your supply chain is to identify your goals. Overall goals of supply chain management processes for distributors generally focus on efficient and accurate receiving, inventory accuracy, effective slotting, flexible replenishment, multiple picking options, increased warehouse productivity, reduced returns and flexible exception handling. “When looking at supply chain investment, it is important to determine what your goals are, then develop an effective roadmap for investing in your supply chain,” states Cal Petty, director of supply chain practice for CIBER, who specializes in applications and implementation. Advanced planning cannot be overemphasized. There is a story of a supermarket chain that implemented an expensive routing and scheduling software package in its eight distribution centers. Then, a year later, it began to question just how many distribution centers it needed in the first place. Next, decide whether your supply chain improvement project is one you can handle on your own, or whether you need a consultant. It’s a trade-off between cost and internal resources. While consultants can be expensive, your organization may not have the internal expertise necessary to handle the project on its own. And even if you do, you may not be able to pull these people away from their regular jobs. If you do opt to hire a consultant, find one who has specific experience in the beverage industry. Whether or not you hire a consultant, it is important to create an internal steering committee to oversee the project, plus a design team to actually implement the project.

7.3 Technology Used The technology to be used for implementation of the proposed system is ERP-II. ERP II can be defined as the next generation of enterprise resource planning strategies and applications. ERP II focusses not just on information usage, but also upon delivering it

to the individual who requires it, and in a way that best suits their needs. ERP II superseded ERP and its two lesser known iterations called extended ERP and Enterprise Application Suite (EAS).The most apparent change from ERP to ERP II is a change in focus from one that is totally enterprise-centric and preoccupied with internal resource optimization and transactional processing to a new focus on process integration and external collaboration. ERP II application deployment strategies relates to information that is exchanged between two or more businesses over the Internet. This exchange of information electronically via the Internet is known as collaborative commerce or ccommerce2. So it can be concluded that ERP II has c-commerce features. ERP II has also expanded to include areas such as Supply Chain Management (SCM), Customer Relationship Management (CRM), Knowledge Management (KM), business intelligence (BI), and inventory optimization(IO). The features in ERP II is very much in line with the Gartner research paper which predicted that ERP II would take ERP foundation and extend it outward to position the enterprise in the supply chain.

7.4 Deployment of ERP-II in a Customized Way The proposed system, as a first step, will customize the current traditional ERP system in such a way that it supports both legacy ERP system as well as the supply chain and customer relationship management systems deployed over web application. The proposed ERP-II SCM focuses more on supply chain execution rather than supply chain planning. The reason is quite obvious; Pepsi Haidri Beverages is quite a mature company where planning of supply chain network is already done and the location of facility installation has already been chosen. There is no chance of expansion since the other business units of Pepsi manufacturing are already operating in their respective areas and the areas of responsibility has been divided and well-managed.

7.5 Achieving Target Deployment The ERP-II deployment is planned in the following ways:-

2

Collaborative Commerce, also referred to as c-commerce, involves the collaborative, electronically enabled business interactions among enterprise’s internal personnel, business partners and customers throughout a trading community. The trading community can be an industry, industry segment, supply chain or supply chain segment.

•

As a first step, ERP-I modules will run in parallel with ERP-II modules which include Supply Chain Management and Customer Relationship Management. This is will be done by making changes in the database so that the legacy software will not be affected by those changes and even if it does, it would be so minor that a little customization will overcome the changes made to the database. Major changes like creation of new screens, reports, and all work related to business process reengineering will be done in such a way that it would not disturb the current legacy system. A new database will be created for this purpose and development of new system will go head-to-head with the old system. After completion of ERP-II system, the old database will be merged into the new system so that the previous on-going operations would not get interrupted.

•

The aim of creating a new application is to shift the whole application to a webbased solution so that personnel who are working outside the company’s boundary can also access the information and operate the system as per their role and requirement.

•

Security is another major issue regarding successful implementation and deployment of web-based ERP application. For this purpose, special encryption and decryption algorithm will be created and incorporated in all those areas of software that deals with information transfer from the user to the host application or vice versa and specifically those which contain sensitive information like product ingredients, customer and supplier transactions, inventory information, shipment and sales information etc. For this purpose, the information coming from either of the three supply chain participants will be first encrypted using hash functions which are embedded to support digital signatures for the verification of sender. The information will then further be encrypted using different techniques and decrypted at the receiver’s end. The encryption and decryption process will be kept hidden from the users to ensure ease of use.

7.6 Benefits of Using Web SCM systems

Among countless benefits of web-based SCM systems, a few of them identified as most beneficial to Pepsi Haidri Beverages are as follows: 1. The biggest benefit of web SCM is the easy and equal access to all participants of the supply chain of Haidri Beverages. It would not cost them even a single extra penny to give access of the solution to distributors and suppliers while the benefits are far-reaching. 2. There is no need to install the whole or any part of the web-based solution at individual participant’s location. The web-based solution allows all parties to access information from a single database or distributed databases (proposed for future developments). The other key benefit extracted from it is the elimination of EDI (Electronic Data Interchange). A question may arise as to what makes the Internet different from electronic data interchange (EDI), a technology that has been around for more than 20 years. Essentially, the Internet performs the same function as EDI at a fraction of the cost. Moreover, it has capabilities that EDI does not possess, namely, real-time versus batch processing, transmission of unlimited data types including graphics, forecasts and an open, non-proprietary network. If carefully exploited, these Internet characteristics can lead to significant value creation. 3. A short word that covers a huge range of benefits itself is “collaboration”. Web-

SCM offers a great level of collaboration among all partners of the supply chain by exchanging real-time information with each other. a good starting point is to think of the number of ways in which your company interacts with both customers and suppliers. These interactions can be categorized as one of the following: executing a transaction; determining optimal prices; discovering available supply and unmet demand; and supply chain planning for new and existing products. Thus, three distinct categories emerge where B2B e-commerce can be applied to extract value: •

Reduced transaction charges

•

Improved market efficiencies

•

Enhanced supply chain benefits

Prior to making any investment in B2B e-commerce, a company has to identify the value created and the effort required for implementation under each of these categories. The relative position of these categories will not be the same for all firms but will vary based on the supply chain strategy and competitive environment. A company must tailor ecommerce implementation to support categories where the value created is high relative to the cost of implementation.

7.7 Network Diagram of Proposed System

Figure 30 Network Diagram of the Proposed System

A simple diagram of the network setup has been developed which depicts how the suppliers and distributors are connected to the internet. The web application is hosted by the company itself which is connected to the internet with a firewall installed. The web-based application is accessible by the suppliers and distributors via internet. Further, more illustrative diagram is given as follows:Distributor/Wholesaler

Suppliers

Distributor/Wholesaler

Suppliers Distributor/Wholesaler

Distributor/Wholesaler

Suppliers

Suppliers Distributor/Wholesaler

Suppliers

Pepsi Manufacturing Location

Figure 31 Detailed Network Diagram of Proposed System

7.8 Core Modules of Proposed System The following modules have been identified as the core supply chain management system modules to be implemented phase-by-phase (implementation of operationssupported TPS modules in the first phase):1. Demand Management 2. Supply Chain Analytics 3. Vendor Managed Inventory 4. Inventory Management 5. Transportation Management 6. Supplier Relationship Management 7. Manufacturing Execution 8. Facility Management 9. Sourcing 10. Sales and Customer Support 11. Financial Management

7.9 Demand Management Demand management module contains two major items: a. Demand and supply forecasting and b. Aggregate planning 7.9.1

Demand and Supply Forecasting: In demand and supply forecasting, the

forecasts will be based on time series, qualitative and causal methods. Data for time series will be acquired from previous year’s sales records. Other features include: i. Forecast horizon ii. Frequency of update iii. Forecast error iv. Seasonal factors v. Procurement forecast based on previous production and store data vi. Variance from plan

vii. Ratio of demand variability to order variability See Information-related metrics for study of details of the included features. 7.9.2 Aggregate Planning: In this section, the forecast will be divided into biannually, quarterly, monthly, weekly and daily forecast to make it easier for the staff to plan the demand and supply. The aggregate plan will be made in accordance with the user specification, that is, to what extent he wants to divide the forecast. The aggregate planning module will then be able to generate the following plans: i. Sales Forecasting ii. Procurement Forecasting iii. Production Forecasting Figure 32 Data Input and Output Diagarm - Data generated from demand forecast will be used as input for Aggregate Planning subsystem

The data generated from demand forecast, that is, the forecast data will be used as input by the aggregate planning module to generate time-specific plans.

7.10 Supply Chain Analytics This module deals with the analysis of Pepsi Haidri Beverages’ supply chain. This module performs the following tasks: i. Define and select Key Performance Indicators (KPIs) ii. Monitoring and analysis of KPIs iii. Safety stock planning iv. Supplier delivery performance ratings, including lead times, quality of product delivered, items returned, items found damaged/non-usable, and durability of delivered product

7.11 Vendor Managed Inventory Vendor Managed Inventory (VMI) is a family of business models in which the buyer of a product provides certain information to a supplier of that product and the supplier takes full responsibility for maintaining an agreed inventory of the material, usually at

the buyer's consumption location (usually a distributor warehouse). A third party logistics provider can also be involved to make sure that the buyer have the required level of inventory by adjusting the demand and supply gaps. The VMI module will provide the following features:i. Inventory management at distributor end ii. Stock-in and stock-out iii. Secondary sales iv. Daily opening and ending report v. Re-order levels vi. Other key features include tracking of: a. Quantity damaged b. Maximum inventory quantity c. Returns from customer d. Maximum quantity/daily quantity agreed upon

7.12 Inventory Management System Though items are the same, the inventory management system will be in use by the company only. This module provides full support for the management of raw, semifinished and finished material. The raw and semi-finished material records will be kept separate from warehouse or finished goods inventory records to support customization. The features included for inventory management system are:i. Counting and maintenance of stock and inventory items a. Finished product b. Semi-finished & raw material (store management) ii. Product life management (expiry date tracking) iii. Glass bottle tracking iv. Item categorization v. Pricing vi. Stock-in and stock-out

vii. GRN and return note management

viii.Cycle inventory maintenance ix. Safety inventory maintenance x. Seasonal inventory maintenance xi. Re-order levels xii. Bill of materials xiii.Average inventory xiv.Products with more than a specified number of days of inventory xv. Average replenishment time & size xvi.Fill rate xvii.Fraction of time out of stock xviii.Requisition generation xix.Reports a. Item list b. Price list c. Stock status d. Item requisition history e. Inventory turnover f. Inventory opening & closing xx. Notifications a. When item reaches re-order level b. When item reaches expiry date c. When a glass bottle reaches maximum number of times it can be filled

7.13 Transportation Management This module supports all features related to transport. Following are the features proposed for transport management module:

i.

Transportation Modes Management: This is a master file which contains all modes available for transportation.

ii. Transportation Facilities Management: This module maintains records of all

transportation facilities held by the company. This will include vehicle number, engine and chassis numbers, type of vehicle, load capacity etc. iii. Routing Management: This feature contains routing tables and tax details. For

example, the route for importing Pepsi concentrate from New York can be defined as: Route New York to Karachi Karachi to Lahore Lahore to Hattar Hattar to Rawalpindi

Mode Sea Land Land Land

Distance (km) 4000 800 250 100

Tax Rs. 200,000 500 300 200

iv. Reporting and Calculations: a. Average inbound transportation cost b. Average incoming shipment size c. Average inbound transportation cost per shipment d. Average outbound transportation cost e. Average outbound shipment size f. Average outbound transportation cost per shipment g. Fraction transported by mode (inbound & outbound)

7.14 Supplier Relationship Management This module is responsible for maintenance of supplier records, including master data as well as supplier history. This will also allow collaboration among supplier and Haidri beverages by setting up which modules and screens the supplier can access by defining access right incorporated in supplier master data. Following are the features supported by this module: i. Supplier Master Data Management ii. Supplier History Maintenance

a. Lead Time b. Frequency of purchases c. Credit history d. Performance history 1) Order delivered on time 2) Pricing 3) Terms and conditions flexibility 4) Supplier ranking iii. Supplier Selection iv. Supplier classification v. Reports a. Days Payable outstanding b. Average purchase price c. Product-grouped vendors list d. Ranking e. Average purchase quantity – vendor wise f. Supply quality g. Supply lead time h. Fraction on-time deliveries i. Supplier scoring

7.15 Manufacturing Execution System This module allows full monitoring and planning of production process. The following features are proposed for this module: i. Production scheduling ii. Labor shifts management iii. Waste management

iv. Production summary v. Cost of goods manufactured vi. Bills of material vii. Mapping production to facilities viii.Manufacturing operations management ix. Process Costing x. Reports a. Production Plan b. Product Costing c. Process Costing Report d. Production Day-End Report e. Facilities Engagement Report f. Number of hours consumed by each facility at day-end g. Average manufacturing time for each item h. Average cost of goods manufactured i. Cost of goods available for sale

7.16 Facility Management This module offers full support for management of all facilities installed at Pepsi Haidri Beverages as well as those which are used for operating purposes like vehicles, computer systems, photocopy machines, printers, fax machines, security gate, loaders, fork lifters, etc. The following features are supported by this module: i. Facilities Master Data a. Type

b. Capacity c. Maximum number of workable hours d. Location ii. Operational costs iii. Mapping employees to facility iv. Utilization v. Product variety vi. Mapping production schedules to facilities vii. Reports and Computations a. Capacity b. Utilization c. Cycle time of production d. Actual Average flow/cycle time e. Flow time efficiency f. Product variety g. Processing/setup/down/idle time h. Average production batch size i. Production service level

7.17 Sourcing Sourcing refers to all activities involved in purchasing raw and semi-finished materials from suppliers or third parties. The key features of this module are: i. Supplier Tenders management ii. Request for Quotations iii. Supplier quotations

iv. Supplier selection v. Purchase order management vi. Goods receipt Note Management vii. Invoicing viii.Material returns management ix. Reports and Calculations a. Days payable outstanding b. Average purchase price c. Range of purchase price d. Average purchase quantity e. Fraction on time delivery f. Supply quality g. Supply lead time h. Purchases History

7.18 Sales and Support The module supports the following features: i. Distributor Information management a. Storage Capacity b. Location c. Distributor’s retail channel ii. Key accounts management iii. Sales order processing iv. Sale Order tracking

v. Sales invoicing vi. Secondary Sales Management vii. TDM Personnel Management viii.Target definition and tracking ix. Reports a. Distributor Data b. Secondary Sales Tracking c. Target tracking d. Distributor ranking e. Average lead time f. Product sales analysis g. Forecast variability

7.19 Financial Management This module controls a wide range of activities. All matters relating to “money” are dealt here. The key features of this module include:i. Capital Budgeting ii. Posting of Transactions iii. Cash payments and receipts iv. Transaction Audit System v. Report Generation a. Cost of Goods Sold b. Cash Flow Statement c. Payment Schedules

d. Analysis of Financial Statements

Chapter 8

Limitations and Future Recommendations

Chapter 8 Limitations and Future Recommendations

8.1 Limitations of Study The following limitations were identified during study:1. Rough-cut Method: The supply chain management system proposed for Pepsi Haidri Beverages was, in the first stage, has been designed using the Rough-cut model only. These models typically assume a "single site" (i.e., ignore the network) and add supply chain characteristics to it, such as explicitly considering the site's relation to the others in the network. Therefore, the supply chain system proposed for the company would only contain suppliers and distributors of Pepsi Haidri Beverages Islamabad only. The other franchise owners of Pepsi will be connected to the supply chain in future, as mentioned in article 8.2, 2. RFID Technology: RFID technology has not been proposed due to the huge budget required to implement this technology. Moreover, the company does not need this technology since, firstly, tracking of the items being sold is already supported by the SCM features and secondly, the distribution area is limited to urban and rural areas of Rawalpindi and Islamabad district only. 3. Supplier Connectivity: the number of suppliers connecting to the proposed system is expected to be more or less 10-20%. For this purpose, the company is expecting to connect only those suppliers who supply major items like concentrate, cans, sugar and plastics suppliers.

8.3 Customization vs. Re-engineering Most of the modules proposed in the supply chain system are re-engineered, that is, they need major changes in the core business processes. The modules which needed some customization include the following:•

Forecasting

•

Sales

•

Distributor and manufacturer inventory

•

Production scheduling and control

From the above modules, sales module is the module that needs maximum customization. The payment modes are proposed to be changed although the payment method would remain the same, that is, advanced payment. The requirements for distributor and manufacturer inventory management system remain that same with some addition in fields to support decision-making process.

8.3 Future Recommendations The following enhancements and upgrades are recommended for the proposed system in future:1. Expansion of supply chain management system to customers, and in this case, retailers to whom the distributors sell out the product. Retailers will also be provided a facility to connect to the system from where data relating to the actual sales to consumers can be collected. 2. Point of Sale system for distributors: The distributor will be provided a pointof-sale application connected to the system from where real-time data will be captured 3. Distributed database approach: The database supported by the system will be distributed, that is, replicas of database will be created at a number of host sites (the other franchise owners of Pepsi). Local databases to distributors will also be provided to support efficient POS system. This database will be highly synchronized with master databases arranged in a peep-to-peer network arrangement of distributed system. 4. Network security 5. Data mining 6. Connecting other manufacturing locations to Haidri beverages Rawalpindi

7. Complete transformation of legacy systems to ERP-II systems

8.4 Conclusion Supply chain management is an exploding field, both in research and in practice. Major international consulting firms have developed large practices in the supply chain field. Through better information engineering, supply chain improvements have resulted in a reduced bullwhip effect, lower inventory levels, reduced logistics costs, and streamlined payments. These improvements appear to have helped macroeconomic benefits such as more stable economic output and higher productivity growth. However, Firms who operate in global environment and deal with multiple suppliers and customers, are required to manage inventories in new and innovative ways, and are faced with possible channel restructuring. The field promises to continue growing as the research advances and as firms continue to apply knowledge in their global networks. Finally, as the internet changes fundamental assumptions about business, firms operating in supply chains will be required to understand this new phenomenon and respond accordingly. As for Pepsi Haidri Beverages, in order to survive in the current economic conditions as well as the increased competition in beverage industry with the ever growing competitors like Coca Cola adopting new techniques of expanding their supply chain and reaching their customers in a much more efficient manner and producing beverages according to consumer demand, it is more advisable to Pepsi Haidri Beverages to conduct the business in a strategic way with technological support and efficient demand and supply network which seems impossible without supply chain collaboration and information technology support.

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